Ray Dalio - Principles
Ray Dalio - Principles ---- 10/10
Idea: The Principles that Ray Dalio Uses to evaluate decisions and structural thinking around them.
Tagline: A peak into Ray Dalio's Head
*** Problem Diagnosis and Eradication
***Proceedure Manual and Managing people through checklist tasks
Time to Read Synopsis : 1-2 hours (still to be tested)
By putting them out there and stress testing them (Ideas or Principles), the probabilities of their being right will increase.
I also believe that those principles that are most valuable to each of us come from our own encounters with reality and our reflections on these encounters – not from being taught and simply accepting someone else’s principles.
To be successful, you must make correct, tough choices. You must be able to “cut off a leg to save a life,” both on an individual level and, if you lead people, on a group level. And to be a great leader, it is important to remember that you will have to make these choices by understanding and caring for your people, not by following them.
Time is like a river that will take you forward into encounters with reality that will require you to make decisions. You can’t stop the movement down this river, and you can’t avoid the encounters. You can only approach these encounters in the best way possible.
1) It isn't easy for me to be confident that my opinions are right. In the markets, you can do a huge amount of work and still be wrong.
2) Bad opinions can be very costly. Most people come up with opinions and there’s no cost to them. Not so in the market. This is why I have learned to be cautious. No matter how hard I work, I really can’t be sure.
3) The consensus is often wrong, so I have to be an independent thinker. To make any money, you have to be right when they’re wrong. So ... …
1) I worked for what I wanted, not for what others wanted me to do. For that reason, I never felt that I had to do anything. All the work I ever did was just what I needed to do to get what I wanted. Since I always had the prerogative to not strive for what I wanted, I never felt forced to do anything. …
2) I came up with the best independent opinions I could muster to get what I wanted. For example, when I wanted to make money in the markets, I knew that I had to learn about companies to assess the attractiveness of their stocks. At the time, Fortune magazine had a little tear-out coupon that you could mail in to get the annual reports of any companies on the Fortune 500, for free. So I ordered all the annual reports and worked my way through the most interesting ones and formed opinions about which companies were exciting. …
3) I stress-tested my opinions by having the smartest people I could find challenge them so I could find out where I was wrong. I never cared much about others’ conclusions—only for the reasoning that led to these conclusions. That reasoning had to make sense to me. Through this process, I improved my chances of being right, and I learned a lot from a lot of great people. …
4) I remained wary about being overconfident, and I figured out how to effectively deal with my not knowing. I dealt with my not knowing by either continuing to gather information until I reached the point that I could be confident or by eliminating my exposure to the risks of not knowing...
5) I wrestled with my realities, reflected on the consequences of my decisions, and learned and improved from this process. By doing these things, I learned how important and how liberating it is to think for myself. In a nutshell, this is the whole approach that I believe will work best for you—the best summary of what I want the people who are working with me to do in order to accomplish great things.
I want you to work for yourself, to come up with independent opinions, to stress-test them, to be wary about being overconfident, and to reflect on the consequences of your decisions and constantly improve.
1) working for what I wanted, not for what others wanted me to do;
2) coming up with the best independent opinions I could muster to move toward my goals;
3) stress- testing my opinions by having the smartest people I could find challenge them so I could find out where I was wrong;
4) being wary about overconfidence, and good at not knowing;
5) wrestling with reality, experiencing the results of my decisions, and reflecting on what I did to produce them so that I could improve.
I learned that failure is by and large due to not accepting and successfully dealing with the realities of life, and that achieving success is simply a matter of accepting and successfully dealing with all my realities. I learned that finding out what is true, regardless of what that is, including all the stuff most people think is bad - like mistakes and personal weaknesses—is good because I can then deal with these things so that they don’t stand in my way. I learned that there is nothing to fear from truth. While some truths can be scary—for example, finding out that you have a deadly disease—knowing them allows us to deal with them better. Being truthful, and letting others be completely truthful, allows me and others to fully explore our thoughts and exposes us to the feedback that is essential for our learning. I learned that being truthful was an extension of my freedom to be me. I believe that people who are one way on the inside and believe that they need to be another way outside to please others become conflicted and often lose touch with what they really think and feel. It’s difficult for them to be happy and almost impossible for them to be at their best. I know that’s true for me.
I learned that I want the people I deal with to say what they really believe and to listen to what others say in reply, in order to find out what is true. I learned that one of the greatest sources of problems in our society arises from people having loads of wrong theories in their heads—often theories that are critical of others—that they won’t test by speaking to the relevant people about them. Instead, they talk behind people’s backs, which leads to pervasive misinformation. I learned to hate this because I could see that making judgments about people so that they are tried and sentenced in your head, without asking them for their perspective, is both unethical and unproductive. So I learned to love real integrity (saying the same things as one believes) and to despise the lack of it. I learned that everyone makes mistakes and has weaknesses and that one of the most important things that differentiates people is their approach to handling them. I learned that there is an incredible beauty to mistakes, because embedded in each mistake is a puzzle, and a gem that I could get if I solved it, i.e., a principle that I could use to reduce my mistakes in the future. I learned that each mistake was probably a reflection of something that I was (or others were) doing wrong, so if I could figure out what that was, I could learn how to be more effective. I learned that wrestling with my problems, mistakes, and weaknesses was the training that strengthened me. Also, I learned that it was the pain of this wrestling that made me and those around me appreciate our successes.
I learned that the popular picture of success—which is like a glossy photo of an ideal man or woman out of a Ralph Lauren catalog, with a bio attached listing all of their accomplishments like going to the best prep schools and an Ivy League college, and getting all the answers right on tests—is an inaccurate picture of the typical successful person. I met a number of great people and learned that none of them were born great—they all made lots of mistakes and had lots weaknesses—and that great people become great by looking at their mistakes and weaknesses and figuring out how to get around them. So I learned that the people who make the most of the process of encountering reality, especially the painful obstacles, learn the most and get what they want faster than people who do not. I learned that they are the great ones—the ones I wanted to have around me. In short, I learned that being totally truthful, especially about mistakes and weaknesses, led to a rapid rate of improvement and movement toward what I wanted.
While most others seem to believe that learning what we are taught is the path to success, I believe that figuring out for yourself what you want and how to get it is a better path. While most others seem to believe that having answers is better than having questions, I believe that having questions is better than having answers because it leads to more learning. While most others seem to believe that mistakes are bad things, I believe mistakes are good things because I believe that most learning comes via making mistakes and reflecting on them. While most others seem to believe that finding out about one’s weaknesses is a bad thing, I believe that it is a good thing because it is the first step toward finding out what to do about them and not letting them stand in your way. While most others seem to believe that pain is bad, I believe that pain is required to become stronger.
Yes, I started Bridgewater from scratch, and now it’s a uniquely successful company and I am on the Forbes 400 list. But these results were never my goals—they were just residual outcomes—so my getting them can’t be indications of my success. And, quite frankly, I never found them very rewarding. What I wanted was to have an interesting, diverse life filled with lots of learning—and especially meaningful work and meaningful relationships.
I believe there are an infinite number of laws of the universe and that all progress or dreams achieved come from operating in a way that’s consistent with them. These laws and the principles of how to operate in harmony with them have always existed. We were given these laws by nature. Man didn’t and can’t make them up. He can only hope to understand them and use them to get what he wants. For example, the ability to fly or to send cellular phone signals imperceptibly and instantaneously around the world or any other new and beneficial developments resulted from understanding and using previously existing laws of the universe. These inventions did not come from people who were not well-grounded in reality. The same is true for economic, political, and social systems that work. Success is achieved by people who deeply understand reality and know how to use it to get what they want. The converse is also true: idealists who are not well-grounded in reality create problems, not progress. For example, communism was a system created by people with good intentions who failed to recognize that their idealistic system was inconsistent with human nature. As a result, they caused more harm than good.
Truth —more precisely, an accurate understanding of reality— is the essential foundation for producing good outcomes.
This perspective gives me a non-traditional sense of good and bad: “good,” to me, means operating consistently with the natural laws, while “bad” means operating inconsistently with these laws. In other words, for something to be “good” it must be grounded in reality. And if something is in conflict with reality—for example, if morality is in conflict with reality—it is “bad,” i.e., it will not produce good outcomes.
I believe that evolution, which is the natural movement toward better adaptation, is the greatest single force in the universe, and that it is good.
I believe that the desire to evolve, i.e., to get better, is probably humanity’s most pervasive driving force. Enjoying your job, a craft, or your favorite sport comes from the innate satisfaction of getting better. Though most people typically think that they are striving to get things (e.g., toys, better houses, money, status, etc.) that will make them happy, that is not usually the case. Instead, when we get the things we are striving for, we rarely remain satisfied. It is natural for us to seek other things or to seek to make the things we have better. In the process of this seeking, we continue to evolve and we contribute to the evolution of all that we have contact with. The things we are striving for are just the bait to get us to chase after them in order to make us evolve, and it is the evolution and not the reward itself that matters to us and those around us.
1) seeking new things (goals); 2) working and learning in the process of pursuing these goals; 3) obtaining these goals; and 4) then doing this over and over again is the personal evolutionary process that fulfills most of us and moves society forward. I believe that pursuing self-interest in harmony with the laws of the universe and contributing to evolution is universally rewarded, and what I call “good.” Look at all species in action: they are constantly pursuing their own interests and helping evolution in a symbiotic way, with most of them not even knowing that their self-serving behaviors are contributing to evolution.
Self-interest and society’s interests are generally symbiotic: more than anything else, it is pursuit of self- interest that motivates people to push themselves to do the difficult things that benefit them and that contribute to society. In return, society rewards those who give it what it wants.
In other words, there is an excellent correlation between giving society what it wants and making money, and almost no correlation between the desire to make money and how much money one makes. I know that this is true for me—i.e., I never worked for money.
Over time, nature evolves toward the right balance through the process of natural selection—e.g., an overly aggressive animal will die prematurely, as will an overly timid animal. However, because man has the ability to look at himself and direct his own change, individuals have the capacity to evolve.
Most of us are born with attributes that both help us and hurt us, depending on their applications, and the more extreme the attribute, the more extreme the potential good and bad outcomes these attributes are likely to produce. For example, highly creative, goal-oriented people who are good at imagining the big picture often can easily get tripped up on the details of daily life, while highly pragmatic, task-oriented people who are great with the details might not be creative. That is because the ways their minds work make it difficult for them to see both ways of thinking. In nature everything was made for a purpose, and so too were these different ways of thinking. They just have different purposes. It is extremely important to one’s happiness and success to know oneself—most importantly to understand one’s own values and abilities—and then to find the right fits. We all have things that we value that we want and we all have strengths and weaknesses that affect our paths for getting them. The most important quality that differentiates successful people from unsuccessful people is our capacity to learn and adapt to these things.
Unlike any other species, man is capable of reflecting on himself and the things around him to learn and adapt in order to improve. He has this capability because, in the evolution of species man’s brain developed a part that no other species has—the prefrontal cortex. It is the part of the human brain that gives us the ability to reflect and conduct other cognitive thinking. Because of this, people who can objectively reflect on themselves and others —most importantly on their weaknesses are—can figure out how to get around these weaknesses, can evolve fastest and come closer to realizing their potentials than those who can’t. However, typically defensive, emotional reactions—i.e., ego barriers—stand in the way of this progress. These reactions take place in the part of the brain called the amygdala. As a result of them, most people don’t like reflecting on their weaknesses even though recognizing them is an essential step toward preventing them from causing them problems. Most people especially dislike others exploring their weaknesses because it makes them feel attacked, which produces fight or flight reactions; however, having others help one find one’s weaknesses is essential because it’s very difficult to identify one’s own. Most people don’t like helping others explore their weaknesses, even though they are willing to talk about them behind their backs. For these reasons most people don’t do a good job of understanding themselves and adapting in order to get what they want most out of life. In my opinion, that is the biggest single problem of mankind because it, more than anything else, impedes people’s abilities to address all other problems and it is probably the greatest source of pain for most people. Some people get over the ego barrier and others don’t. Which path they choose, more than anything else, determines how good their outcomes are. Aristotle defined tragedy as a bad outcome for a person because of a fatal flaw that he can’t get around. So it is tragic when people let ego barriers lead them to experience bad outcomes.
As I mentioned before, I believe that life consists of an enormous number of choices that come at us and that each decision we make has consequences, so the quality of our lives depends on the quality of the decisions we make.
Reality + Dreams + Determination = A Successful Life
What is essential is that you are clear about what you want and that you figure out how to get it.
Two paths to happiness: 1) have high expectations and strive to exceed them, or 2) lower your expectations so that they are at or below your conditions. Most of us choose the first path, which means that to be happy we have to keep evolving.
As I mentioned, as we head toward our goals we encounter an enormous number of choices that come at us, and each decision we make has consequences. So, the quality of our lives depends on the quality of the decisions we make. We literally make millions of decisions that add up to the consequences that are our lives. Of these millions, I believe that there are five big types of choices that we continually must make that radically affect the quality of our lives and the rates at which we move toward what we want. Choosing well is not dependent on our innate abilities such as intelligence or creativity, but more on what I think of as character. For this reason, I believe that most people can make the right choices.
It is a fundamental law of nature that to evolve one has to push one’s limits, which is painful, in order to gain strength—whether it’s in the form of lifting weights, facing problems head-on, or in any other way. Nature gave us pain as a messaging device to tell us that we are approaching, or that we have exceeded, our limits in some way. At the same time, nature made the process of getting stronger require us to push our limits. Gaining strength is the adaptation process of the body and the mind to encountering one’s limits, which is painful. In other words, both pain and strength typically result from encountering one’s barriers. When we encounter pain, we are at an important juncture in our decision- making process. Most people react to pain badly. They have “fight or flight” reactions to it: they either strike out at whatever brought them the pain or they try to run away from it. As a result, they don’t learn to find ways around their barriers, so they encounter them over and over again and make little or no progress toward what they want. Those who react well to pain that stands in the way of getting to their goals—those who understand what is causing it and how to deal with it so that it can be disposed of as a barrier—gain strength and satisfaction. This is because most learning comes from making mistakes, reflecting on the causes of the mistakes, and learning what to do differently in the future. Believe it or not, you are lucky to feel the pain if you approach it correctly, because it will signal that you need to find solutions and to progress. Since the only way you are going to find solutions to painful problems is by thinking deeply about them—i.e., reflecting—if you can develop a knee-jerk reaction to pain that is to reflect rather than to fight or flee, it will lead to your rapid learning/evolving. So, please remember that: Pain + Reflection = Progress How big of an impediment is psychological pain to your progress?
People who confuse what they wish were true with what is really true create distorted pictures of reality that make it impossible for them to make the best choices.
Ask yourself, “Is it true?” ...because knowing what is true is good.
People who worry about looking good typically hide what they don’t know and hide their weaknesses, so they never learn how to properly deal with them and these weaknesses remain impediments in the future. These people typically try to prove that they have the answers, even when they really don’t. Why do they behave in this unproductive way? They typically believe the senseless but common view that great people are those who have the answers in their heads and don’t have weaknesses. Not only does this view not square with reality, but it also stands in the way of progress. I have never met a great person who did not earn and learn their greatness. They have weaknesses like everyone else—they have just learned how to deal with them so that they aren’t impediments to getting what they want. In addition, the amounts of knowledge and the capabilities that anyone does not have, and that could be used to make the best possible decisions, are vastly greater than that which anyone (no matter how great) could have within them. This explains why people who are interested in making the best possible decisions rarely are confident that they have the best possible answers. So they seek to learn more (often by exploring the thinking of other believable people, especially those who disagree with them) and they are eager to identify their weaknesses so that they don’t let these weaknesses stand in the way of them achieving their goals. So, what are your biggest weaknesses? Think honestly about them because if you can identify them, you are on the first step toward accelerating your movement forward. So think about them, write them down, and look at them frequently. -----> ( Worrying about looking good or appearing smart is a weakness I find inside of myself)
TAKE A BREAK AND JUMP ON YOUR TRAMPOLINE FOR 2 MINUTES AND LET YOURSELF BE HAPPY!
People who overweigh the first-order consequences of their decisions and ignore the effects that the second- and subsequent-order consequences will have on their goals rarely reach their goals. This is because first-order consequences often have opposite desirabilities from second-order consequences, resulting in big mistakes in decision-making. For example, the first-order consequences of exercise (pain and time-sink) are commonly considered undesirable, while the second-order consequences (better health and more attractive appearance) are desirable. Similarly, food that tastes good is often bad for you and vice versa, etc. If your goal is to get physically fit and you don’t ignore the first-order consequences of exercise and good-tasting but unhealthy food and connect your decisions with their second- and third-order consequences, you will not reach your goal. Quite often the first-order consequences are the temptations that cost us what we really want, and sometimes they are barriers that stand in our way of getting what we want. It’s almost as though the natural selection process sorts us by throwing us trick choices that have both types of consequences and penalizing the dummies who make their decisions just on the basis of the first-order consequences alone. By contrast, people who choose what they really want, and avoid the temptations and get over the pains that drive them away from what they really want, are much more likely to have successful lives. How much do you respond to 1st order consequences at the expense of 2nd and 3rd order consequences?
People who blame bad outcomes on anyone or anything other than themselves are behaving in a way that is at variance with reality, and subversive to their progress. Successful people understand that bad things come at everyone and that it is their responsibility to make their lives what they want them to be by successfully dealing with whatever challenges they face.
In summary, I believe that you can probably get what you want out of life if you can suspend your ego and take a no-excuses approach to achieving your goals with open-mindedness, determination, and courage, especially if you rely on the help of people who are strong in areas that you are weak.
If I had to pick just one quality that those who make the right choices have, it is character. Character is the ability to get one’s self to do the difficult things that produce the desired results. In other words, I believe that for the most part, achieving success—whatever that is for you—is mostly a matter of personal choice and that, initially, making the right choices can be difficult. However, because of the law of nature that pushing your boundaries will make you stronger, which will lead to improved results that will motivate you, the more you operate in your “stretch zone,” the more you adapt and the less character it takes to operate at the higher level of performance. So, if you don’t let up on yourself, i.e., if you operate with the same level of “pain,” you will naturally evolve at an accelerating pace. Because I believe this, I believe that whether or not I achieve my goals is a test of what I am made of. It is a game that I play, but this game is for real. In summary, I don’t believe that limited abilities are an insurmountable barrier to achieving your goals, if you do the other things right.
YOUR TWO YOUS AND YOUR MACHINE Those who are most successful are capable of “higher level thinking” —i.e., they are able to step back and design a “machine” consisting of the right people doing the right things to get what they want. They are able to assess and improve how their “machine” works by comparing the outcomes that the machine is producing with the goals. Schematically, the process is as shown in the diagram below. It is a feedback loop: That schematic is meant to convey that your goals will determine the “machine” that you create to achieve them; that machine will produce outcomes that you should compare with your goals to judge how your machine is working. Your “machine” will consist of the design and people you choose to achieve the goals. For example, if you want to take a hill from an enemy you will need to figure out how to do that— e.g., your design might need two scouts, two snipers, four infantrymen, one person to deliver the food, etc. While having the right design is essential, it is only half the battle. It is equally important to put the right people in each of these positions. They need different qualities to play their positions well—e.g., the scouts must be fast runners, the snipers must be precise shots, etc. If your outcomes are inconsistent with your goals (e.g., if you are having problems), you need to modify your “machine,” which means that you either have to modify your design/culture or modify your people.
I call it “higher level thinking” because your perspective is of one who is looking down on at your machine and yourself objectively, using the feedback loop as I previously described. In other words, your most important role is to step back and design, operate and improve your “machine” to get what you want. Think of it as though there are two yous—you as the designer and overseer of the plan to achieve your goals (let’s call that one you(1)) and you as one of the participants in pursuing that mission (which we will call you(2)). You(2) are a resource that you(1) have to get what you(1) want, but by no means your only resource. To be successful you(1) have to be objective about you(2).
Let’s imagine that your goal is to have a winning basketball team. Wouldn’t it be silly to put yourself in a position that you don’t play well? If you did, you wouldn’t get what you want. Whatever your goals are, achieving them works the same way. If you(1) see that you(2) are not capable of doing something, it is only sensible for you(1) to have someone else do it. In other words, you(1) should look down on you(2) and all the other resources at your(1) disposal and create a “machine” to achieve your(1) goals, remembering that you(1) don’t necessarily need to do anything other than to design and manage the machine to get what you(1) want. If you(1) find that you(2) can’t do something well fire yourself(2) and get a good replacement! You shouldn’t be upset that you found out that you(2) are bad at that—you(1) should be happy because you(1) have improved your(1) chances of getting what you(1) want. If you(1) are disappointed because you(2) can’t be the best person to do everything, you(1) are terribly naïve because nobody can do everything well. The biggest mistake most people make is to not see themselves and others objectively. If they could just get around this, they could live up to their potentials. in the long run, doing the things that will make you successful is a lot easier than being unsuccessful.
Do MY 5-STEP PROCESS TO GETTING WHAT YOU WANT OUT OF LIFE There are five things that you have to do to get what you want out of life. First, you have to choose your goals, which will determine your direction. Then you have to design a plan to achieve your goals. On the way to your goals, you will encounter problems. As I mentioned, these problems typically cause pain. The most common source of pain is in exploring your mistakes and weaknesses. You will either react badly to the pain or react like a master problem solver. That is your choice. To figure out how to get around these problems you must be calm and analytical to accurately diagnose your problems. Only after you have an accurate diagnosis of them can you design a plan that will get you around your problems. Then you have to do the tasks specified in the plan. Through this process of encountering problems and figuring out how to get around them, you will become progressively more capable and achieve your goals more easily. Then you will set bigger, more challenging goals, in the same way that someone who works with weights naturally increases the poundage. This is the process of personal evolution, which I call my 5-Step Process.
In other words, “The Process” consists of five distinct steps: 1) Have clear goals. 2) Identify and don’t tolerate the problems that stand in the way of achieving your goals. 3) Accurately diagnose these problems. 4) Design plans that explicitly lay out tasks that will get you around your problems and on to your goals. 5) Implement these plans—i.e., do these tasks. You need to do all of these steps well in order to be successful.
Before discussing these individual steps in more detail, I want to make a few general points about the process. 1) You must approach these as distinct steps rather than blur them together. For example, when setting goals, just set goals (don’t think how you will achieve them or the other steps); when diagnosing problems, just diagnose problems (don’t think about how you will solve them or the other steps). Blurring the steps leads to suboptimal outcomes because it creates confusion and short-changes the individual steps. Doing each step thoroughly will provide information that will help you do the other steps well, since the process is iterative. 2) Each of these five steps requires different talents and disciplines. Most probably, you have lots of some of these and inadequate amounts of others. If you are missing any of the required talents and disciplines, that is not an insurmountable problem because you can acquire them, supplement them, or compensate for not having them, if you recognize your weaknesses and design around them. So you must be honestly self-reflective. 3) It is essential to approach this process in a very clear-headed, rational way rather than emotionally. Figure out what techniques work best for you; e.g., if emotions are getting the better of you, take time out until you can reflect unemotionally, seek the guidance of calm, thoughtful others, etc.
To help you do these things well—and stay centered and effective rather than stressed and thrown off by your emotions—try this technique for reducing the pressure: treat your life like a game or a martial art. Your mission is to figure out how to get around your challenges to get to your goals. In the process of playing the game or practicing this martial art, you will become more skilled. As you get better, you will progress to ever-higher levels of the game that will require—and teach you—greater skills. I will explain what these skills are in the next section. However, the big and really great news is that you don’t need to have all of these skills to succeed! You just have to 1) know they are needed; 2) know you don’t have some of them; and 3) figure out how to get them (i.e., either learn them or work with others who have them). This particular game—i.e., your life—will challenge you in ways that will be uncomfortable at times. But if you work through this discomfort and reflect on it in order to learn, you will significantly improve your chances of getting what you want out of life. By and large, life will give you what you deserve and it doesn’t give a damn what you “like.” So it is up to you to take full responsibility to connect what you want with what you need to do to get it, and then to do those things—which often are difficult but produce good results—so that you’ll then deserve to get what you want. That’s just the way it is, so you might as well accept it. Once you accept that playing the game will be uncomfortable, and you do it for a while, it will become much easier (like it does when getting fit). When you excel at it, you will find your ability to get what you want thrilling. You’ll see that excuses like “That’s not easy” are of no value and that it pays to “push through it” at a pace you can handle. Like getting physically fit, the most important thing is that you keep moving forward at whatever pace you choose, recognizing the consequences of your actions. When you think that it’s too hard, remember that in the long run, doing the things that will make you successful is a lot easier than being unsuccessful. The first- order consequences of escaping life’s challenges may seem pleasurable in the moment, but the second- and third-order consequences of this approach are your life and, over time, will be painful.
With practice, you will eventually play this game like a ninja, with skill and a calm centeredness in the face of adversity that will let you handle most of your numerous challenges well. However, you will never handle them all well: mistakes are inevitable, and it’s important to recognize and accept this fact of life. The good news, as I have mentioned, is that most learning comes through making mistakes—so there is no end to learning how to play the game better. You will have an enormous number of decisions to make, so no matter how many mistakes you make, there will be plenty of opportunities to build a track record of success. That’s basically the whole concept.
Do 1) Setting Goals You can have virtually anything you want, but you can’t have everything you want. The first, most important, and typically most difficult step in the 5-Step Process is setting goals, because it forces you to decide what you really want and therefore what you can possibly get out of life. This is the step where you face the fundamental limit: life is like a giant smorgasbord of more delicious alternatives than you can ever hope to taste. So you have to reject having some things you want in order to get other things you want more. Some people fail at this point, afraid to reject a good alternative for fear that the loss will deprive them of some essential ingredient to their personal happiness. As a result, they pursue too many goals at the same time, achieving few or none of them. So it’s important to remember: it doesn’t really matter if some things are unavailable to you, because the selection of what IS available is so great. (That is why many people who had major losses—e.g., who lost their ability to walk, to see, etc.—and who didn’t narrow-mindedly obsess about their loss but rather open- mindedly accepted and enjoyed what remained, had equally happy lives as those who didn’t ever have these losses.) In other words, you can have an enormous amount: much, much more than what you need to have for a happy life. So don’t get discouraged by not being able to have everything you want, and for God’s sake, don’t be paralyzed by the choices. That’s nonsensical and unproductive. Get on with making your choices.
Put another way, to achieve your goals you have to prioritize, and that includes rejecting good alternatives (so that you have the time and resources to pursue even better ones—time being probably your greatest limiting factor, though, through leverage, you can substantially reduce time’s constraints). It is important not to confuse “goals” and “desires.” Goals are the things that you really want to achieve, while desires are things you want that can prevent you from reaching your goals—as I previously explained, desires are typically first-order consequences. For example, a goal might be physical fitness, while a desire is the urge to eat good-tasting, unhealthy food (i.e., a first-order consequence) that could undermine you obtaining your fitness goal. So, in terms of the consequences they produce, goals are good and desires are bad.
Don’t get me wrong; I believe you can choose to pursue any goal you want as long as you consider the consequences. So, staying with this example, I think it is perfectly OK for you to make your goal to enjoy eating good-tasting, unhealthy food if that choice will bring you what you really want. As I said earlier, if you want to be a couch potato, that’s fine with me—seriously. But if that’s not what you want, you better not open that bag of chips. In other words, failing to make the distinction between goals and desires will lead you in the wrong direction, because you will be inclined to pursue things you want that will undermine your ability to get things you want more. In short, you can pursue anything you desire—just make sure that you know the consequences of what you are doing.
Another common reason people fail at this stage is that they lose sight of their goals, getting caught up in day-to-day tasks. Avoid setting goals based on what you think you can achieve. As I said before, do each step separately and distinctly without regard to the others. In this case, that means don’t rule out a goal due to a superficial assessment of its attainability. Once you commit to a goal, it might take lots of thinking and many revisions to your plan over a considerable time period in order to finalize the design and do the tasks to achieve it. So you need to set goals without yet assessing whether or not you can achieve them. This requires some faith that you really can achieve virtually anything [faith is the substance of things unseen the essence of things hoped for], even if you don’t know how you will do it at that moment. Initially you have to have faith that this is true, but after following this process and succeeding at achieving your goals, you will gain confidence. If you like, you can start with more modest goals and, when you build up the track record to give you faith, increase your aspirations. Every time I set goals, I don’t yet have any idea how I am going to achieve them because I haven’t yet gone through the process of thinking through them. But I have learned that I can achieve them if I think creatively and work hard. I also know that I can “cheat.” Unlike in school, in life you don’t have to come up with all the right answers. You can ask the people around you for help—or even ask them to do the things you don’t do well. In other words, there is almost no reason not to succeed if you take the attitude of 1) total flexibility—good answers can come from anyone or anywhere (and in fact, as I have mentioned, there are far more good answers “out there” than there are in you) and 2) total accountability: regardless of where the good answers come from, it’s your job to find them. This no-excuses approach helps me do whatever it takes to get whatever I want most. It’s been my experience that if I commit to bringing creativity, flexibility, and determination to the pursuit of my goals, I will figure out some way to get them, i.e., almost all goals are attainable. And as I don’t limit my goals to what seems attainable at the moment I set them, the goals I set tend to be higher than they would otherwise be. Since trying to achieve high goals makes me stronger, I become increasingly capable of achieving more. Great expectations create great capabilities, in other words. And if I fail to achieve my goal, it just tells me that I have not been creative or flexible or determined enough to do what it takes, and I circle back and figure out what I need to do about this situation.
Achieving your goals isn’t just about moving forward. Inevitably, you must deal with setbacks. So goals aren’t just those things that you want and don’t have. They might also be keeping what you do have, minimizing your rate of loss, or dealing with irrevocable loss. Life will throw you challenges, some of which will seem devastating at the time. Your goal is always to make the best possible choices, knowing that you will be rewarded if you do. It’s like playing golf: sometimes you will be in the fairway and sometimes you will be in the rough, so you have to know how to play it as it lies.
Generally speaking, goal-setting is best done by those who are good at big-picture conceptual thinking, synthesizing, visualizing, and prioritizing. But whatever your strengths and weaknesses are, don’t forget the big and really great news here: it is not essential that you have all of these qualities yourself, because you can supplement them with the help of others. In summary, in order to get what you want, the first step is to really know what you want, without confusing goals with desires, and without limiting yourself because of some imagined impediments that you haven’t thoroughly analyzed.
***Question - How well do you know what you want most out of life? What are your most important goals? Are you good at setting your goals? How confident are you that your assessment of you ability to set goals is right? If you are confident of your self-assessment, why should you be confident (e.g. because you have a demonstrated track-record, because many believable people have told you, etc)?
2) IDENTIFYING AND NOT TOLERATING PROBLEMS After you set your goals, you must come up with a plan or a design to achieve them and then you must execute that plan by doing the tasks. On the way to achieving your goals and executing your design, you will encounter problems that have to be diagnosed, so that the design can be modified to get around these obstacles. That’s why you need to identify and not tolerate problems. Most problems are potential improvements screaming at you.
Whenever a problem surfaces, you have in front of you an opportunity to improve. The more painful the problem, the louder it is screaming.
In order to be successful, you have to 1) perceive problems and 2) not tolerate them.
If you don’t identify your problems, you won’t solve them, so you won’t move forward toward achieving your goals. As a result, it is essential to bring problems to the surface. Most people don’t like to do this. But most successful people know that they have to do this. The most common reasons people don’t successfully identify their problems are generally rooted either in a lack of will or in a lack of talent or skill: They can be “harsh realities” that are unpleasant to look at, so people often subconsciously put them “out of sight” so they will be “out of mind.” Thinking about problems that are difficult to solve can produce anxiety that stands in the way of progress. People often worry more about appearing to not have problems than about achieving their desired results, and therefore avoid recognizing that their own mistakes and/or weaknesses are causing the problems. This aversion to seeing one’s own mistakes and weaknesses typically occurs because they’re viewed as deficiencies you’re stuck with rather than as essential parts of the personal evolution process.
Sometimes people are simply not perceptive enough to see the problems. Some people are unable to distinguish big problems from small ones. Since nothing is perfect, it is possible to identify an infinite number of problems everywhere. If you are unable to distinguish the big problems from the little ones, you can’t “successfully” (i.e., in a practical way) identify problems. Remember, you don’t have to be good at any of the five steps (in this case, identifying problems) to be successful if you get help from others. So push through the pain of facing your problems, knowing you will end up in a much better place.
When identifying problems, it is important to remain centered and logical. While it can be tempting to react emotionally to problems and seek sympathy or blame others, this accomplishes nothing. Whatever the reasons, you have to get over the impediments to succeed. Remember that the pains you are feeling are “growing pains” that will test your character and reward you if you push through them. Try to look at your problems as a detached observer would. Remember that identifying problems is like finding gems embedded in puzzles; if you solve the puzzles you will get the gems that will make your life much better. Doing this continuously will lead to your rapid evolution. So, if you’re logical, you really should get excited about finding problems because identifying them will bring you closer to your goals.
*** Question - How good are you at perceiving problems? How confident are you that your assessment of your ability to perceive problems is right? If you are confident of your self-assessment, why should you be confident (e.g. because you have a demonstrated track-record, because many believable people have told you, etc)?
Be very precise in specifying your problems. It is essential to identify your problems with precision, for different problems have different solutions. For example, if your impediments are due largely to issues of will—to your unwillingness to confront what is really happening—you have to strengthen your will, for example by starting small and building up your confidence. If your problems are related to lack of skill or innate talent, the most powerful antidote is to have others point things out to you and objectively consider whether what they identify is true. Problems due to inadequate skill might then be solved with training, whereas those arising from innate weaknesses might be overcome with assistance or role changes. It doesn’t matter which is the case; it only matters that the true cause is identified and appropriately addressed. The more precise you are, the easier it will be to come up with accurate diagnoses and successful solutions. For example, rather than saying something like “People don’t like me,” it is better to specify which people don’t like you and under what circumstances. Don’t confuse problems with causes. “I can’t get enough sleep” is not a problem; it is a cause of some problem. What exactly is that problem? To avoid confusing the problem with its causes, try to identify the suboptimal outcome, e.g., “I am performing badly in my job because I am tired.”
Once you identify your problems, you must not tolerate them. Tolerating problems has the same result as not identifying them (i.e., both stand in the way of getting past the problem), but the root causes are different. Tolerating problems might be due to not thinking that they can be solved, or not caring enough about solving them. People who tolerate problems are the worse off because, without the motivation to move on, they cannot succeed. In other words, if you are motivated, you can succeed even if you don’t have the abilities (i.e., talents and skills) because you can get the help from others. But if you’re not motivated to succeed, if you don’t have the will to succeed, the situation is hopeless.
*** Question - How much do you tolerate problems? How confident are you that your assessment of how much you tolerate problems is right? If you are confident of your self-assessment, why should you be confident (e.g. because you have a demonstrated track-record, because many believable people have told you, etc)?
People who are good at this step—identifying and not tolerating problems—tend to have strong abilities to perceive and synthesize a clear and accurate picture, as well as demonstrate a fierce intolerance of badness (regardless of the severity). Remember that you need to do each step independently from the other steps before moving on. Can you comfortably identify your problems without thinking about how to solve them? It is a good exercise to just make a list of them, without possible solutions. Only after you have created a clear picture of your problems should you go to the next step.
3) DIAGNOSING THE PROBLEMS You will be much more effective if you focus on diagnosis and design rather than jumping to solutions. It is a very common mistake for people to move directly from identifying a tough problem to a proposed solution in a nanosecond without spending the hours required to properly diagnose and design a solution. This typically yields bad decisions that don’t alleviate the problem. Diagnosing and designing are what spark strategic thinking. You must be calm and logical. When diagnosing problems, as when identifying problems, reacting emotionally, though sometimes difficult to avoid, can undermine your effectiveness as a decision-maker. By contrast, staying rational will serve you well. So if you are finding yourself shaken by your problems, do what you can to get yourself centered before moving forward. You must get at the root causes. Root causes, like principles, are things that manifest themselves over and over again as the deep-seated reasons behind the actions that cause problems. So you will get many everlasting dividends if you can find them and properly deal with them.
It is important to distinguish root causes from proximate causes. Proximate causes typically are the actions or lack of actions that lead to problems—e.g., “I missed the train because I didn’t check the train schedule.” So proximate causes are typically described via verbs. Root causes are the deeper reasons behind the proximate cause: “I didn’t check the schedule because I am forgetful”—a root cause. Root causes are typically described with adjectives, usually characteristics about what the person is like that lead them to an action or an inaction. Identifying the real root causes of your problems is essential because you can eliminate your problems only by removing their root causes. In other words, you must understand, accept, and successfully deal with reality in order to move toward your goals. Recognizing and learning from one’s mistakes and the mistakes of others who affect outcomes is critical to eliminating problems. Many problems are caused by people’s mistakes. But people often find it difficult to identify and accept their own mistakes. More than anything else, what differentiates people who live up to their potential from those who don’t is a willingness to look at themselves and others objectively. Pain + Reflection = Progress Much as you might wish this were not so, this is a reality that you should just accept and deal with. There is no getting around the fact that achieving success requires getting at the root causes of all important problems, and people’s mistakes and weaknesses are sometimes the root causes. So to be successful, you must be willing to look at your own behavior and the behavior of others as possible causes of problems.
4) DESIGNING THE PLAN (DETERMINING THE SOLUTIONS) In some cases, you might go from setting goals to designing the plans that will get you to these goals; while in other cases, you will encounter problems on the way to your goals and have to design your way around them. So design will occur at both stages of the process, though it will occur much more often in figuring out how to get around problems. In other words, most of the movement toward your goals comes from designing how to remove the root causes of your problems. Problems are great because they are very specific impediments, so you know that you will move forward if you can identify and eliminate their root causes.
Creating a design is like writing a movie script in that you visualize who will do what through time in order to achieve the goal. Visualize the goal or problem standing in your way, and then visualize practical solutions. When designing solutions, the objective is to change how you do things so that problems don’t recur—or recur so often. Think about each problem individually, and as the product of root causes—like the outcomes produced by a machine.
Then think about how the machine should be changed to produce good outcomes rather than bad ones. There are typically many paths toward achieving your goals, and you need to find only one of them that works, so it’s almost always doable. But an effective design requires thinking things through and visualizing how things will come together and unfold over time. It’s essential to visualize the story of where you have been (or what you have done) that has led you to where you are now and what will happen sequentially in the future to lead you to your goals. You should visualize this plan through time, like watching a movie that connects your past, present, and future. Then write down the plan so you don’t lose sight of it, and include who needs to do what and when. The list of tasks falls out from this story (i.e., the plan), but they are not the same. The story, or plan, is what connects your goals to the tasks. For you to succeed, you must not lose sight of the goals or the story while focusing on the tasks; you must constantly refer back and forth.
When designing your plan, think about the timelines of various interconnected tasks. Sketch them out loosely and then refine them with the specific tasks. This is an iterative process, alternating between sketching out your broad steps (e.g., hire great people) and filling these in with more specific tasks with estimated timelines (e.g., in the next two weeks choose the headhunters to find the great people) that will have implications (e.g., costs, time, etc.). These will lead you to modify your design sketch until the design and tasks work well together. Being as specific as possible (e.g., specifying who will do what and when) allows you to visualize how the design will work at both a big-picture level and in detail. It will also give you and others the to-do lists and target dates that will help direct you.
Of course, not all plans will accomplish everything you want in the desired time frame. In such cases, it is essential that you look at what won’t be accomplished and ask yourself if the consequences are acceptable or unacceptable. This is where perspective is required, and discussing it with others can be critical. If the plan will not achieve what’s necessary in the required time, so that the consequences have an unacceptably high probability of preventing you from achieving your goal, you have to either think harder (probably with the advice of other believable people) to make the plan do what is required or reduce your goals. It doesn’t take much time to design a good plan—literally just hours spread out over days or weeks—and whatever amount of time you spend designing it will be only a small fraction of the time you spend executing it. But designing is very important because it determines what you will have to do to be effective. Most people make the very big mistake of spending virtually no time on this step because they are too preoccupied with execution.
People successful with this stage have an ability to visualize and a practical understanding of how things really work. Remember, you don’t have to possess all these qualities if you have someone to help you with the ones you are missing.
***Question - How good is your ability to visualize? How confident are you that your assessment of your ability to visualize is accurate? If you are confident of your self-assessment, why should you be confident (e.g. do have an excellent track record of visualizing and making what you visualized happen, have other believable parties told you that you are good at this)?
Remember: Designing precedes doing! The design will give you your to-do list (i.e., the tasks).
5) DOING THE TASKS Next, you and the others you need to rely on have to do the tasks that will get you to your goals. Great planners who don’t carry out their plans go nowhere. You need to “push through” to accomplish the goals. This requires the self-discipline to follow the script that is your design. I believe the importance of good work habits is vastly underrated. There are lots of books written about good work habits, so I won’t digress into what I believe is effective. However, it is critical to know each day what you need to do and have the discipline to do it. People with good work habits have to-do lists that are reasonably prioritized, and they make themselves do what needs to be done. By contrast, people with poor work habits almost randomly react to the stuff that comes at them, or they can’t bring themselves to do the things they need to do but don’t like to do (or are unable to do). There are lots of tools that can help (e.g., thank God for my BlackBerry!) You need to know whether you (and others) are following the plan, so you should establish clear benchmarks. Ideally you should have someone other than yourself objectively measure if you (and others) are doing what you planned. If not, you need to diagnose why and resolve the problem.
People who are good at this stage can reliably execute a plan. They tend to be self-disciplined and proactive rather than reactive to the blizzard of daily tasks that can divert them from execution. They are results-oriented: they love to push themselves over the finish line to achieve the goal. If they see that daily tasks are taking them away from executing the plan (i.e., they identify this problem), they diagnose it and design how they can deal with both the daily tasks and moving forward with the plan. As with the other steps, if you aren’t good at this step, get help. There are many successful, creative people who are good at the other steps but who would have failed because they aren’t good at execution. But they succeeded nonetheless because of great symbiotic relationships with highly reliable task-doers.
How good are THE RELATIONSHIPS BETWEEN THESE STEPS Designs and tasks have no purpose other than to achieve your goals. Said differently, goals are the sole purpose of designs and tasks. So you mustn’t forget how they’re related. Frequently I see people feel great about doing their tasks while forgetting the goals they were designed to achieve, resulting in the failure to achieve their goals. This doesn’t make any sense, because the only purpose of tasks is to achieve goals. In order to be successful, your goals must be riveted in your mind: they are the things you MUST do. To remember the connections between the tasks and the goals that they are meant to achieve, you just have to ask, “Why?” It is good to connect tasks to goals this way (with the “Why?”), because losing sight of the connections will prevent you from succeeding. Again, this 5-Step Process is iterative. This means that after completing one of the steps you will probably have acquired relevant information that leads you to modify the other steps. If this process is working, goals will change much more slowly than designs, which will change more slowly than tasks. Designs and tasks can be modified or changed often (because you might want to reassess how to achieve the goal), but changing goals frequently is usually a problem because achieving them requires a consistent effort. I often find that people who have problems reaching their goals handle these steps backwards; that is, they stick too rigidly to specified tasks and are not committed enough to achieving their goals (often because they lose sight of them).
WEAKNESSES DON’T MATTER IF YOU FIND SOLUTIONS
To repeat, the best advice I can give you is to ask yourself what you want, then ask ‘what is true,’ and then ask yourself ‘what should be done about it.’ If you honestly ask and answer these questions you will move much faster towards what you want to get out of life than if you don’t! Most importantly, ask yourself what is your biggest weakness that stands in the way of what you want. As I mentioned before, everyone has weaknesses. The main difference between unsuccessful and successful people is that unsuccessful people don’t find and address them, and successful people do. It is difficult to see one’s own blind spots for two reasons: 1) Most people don’t go looking for their weaknesses because of “ego barriers”—they find having weaknesses painful because society has taught them that having weaknesses is bad. As I said early on, I believe that we would have a radically more effective and much happier society if we taught the truth, which is that everyone has weaknesses, and knowing about them and how to deal with them is how people learn and succeed. 2) Having a weakness is like missing a sense—if you can’t visualize what it is, it’s hard to perceive not having it. For these two reasons, having people show you what you are missing can be painful, though its essential for your progress. When you encounter that pain, try to remember that you can get what you want out of life if you can open-mindedly reflect, with the help of others, on what is standing in your way and then deal with it.
*** Question - What do you think is the biggest weakness you have that stands in the way of what you want – the one that you repeatedly run into?
People who don’t get what they want out of life fail at one or more of the five steps. But being weak at any one of these steps is not a problem if you understand what you are weak at and successfully compensate for that weakness by seeking help. For example, a good goal-setter who is bad at doing tasks might work well with a bad goal-setter who is great at doing tasks—i.e., they will be much more successful working together. It is easy to find out what weaknesses are standing in your way by 1) identifying which steps you are failing at and 2) getting the feedback of people who are successful at doing what you are having problems with. Because I believe that you will achieve your goals if you do these five steps well, it follows that if you are not achieving your goals you can use the 5-Step Process as a diagnostic tool. You would do this by 1) identifying the step(s) that you are failing at; 2) noting the qualities required to succeed at that step; and 3) identifying which of these qualities you are missing. To repeat, the five steps and the qualities that I believe are required to be good at them are as follows: Values → 1) Goals → 2) Problems → 3) Diagnoses → 4) Designs → 5) Tasks
*** Questions- At which step do you have the most problem? Which qualities needed do you wish you had more of?
In a nutshell, my 5-Step process for achieving what you want is: Values → 1) Goals → 2) Problems → 3) Diagnoses → 4) Designs → 5) Tasks Your values determine what you want, i.e., your goals. In trying to achieve your goals, you will encounter problems that have to be diagnosed. Only after determining the real root causes of these problems can you design a plan to get around them. Once you have a good plan, you have to muster the self-discipline to do what is required to make the plan succeed. Note that this process starts with your values, but it requires that you succeed at all five steps. While these steps require different abilities, you don’t have to be good at all of them. If you aren’t good at all of them (which is true for almost everyone), you need to know what you are bad at and how to compensate for your weaknesses. This requires you to put your ego aside, objectively reflect on your strengths and weaknesses, and seek the help from others. As you design and implement your plan to achieve your goals, you may find it helpful to consider that: ·
Life is like a game where you seek to overcome the obstacles that stand in the way of achieving your goals; · You get better at this game through practice; ·
The game consists of a series of choices that have consequences; ·
You can’t stop the problems and choices from coming at you, so it’s better to learn how to deal with them; ·
You have the freedom to make whatever choices you want, though it’s best to be mindful of their consequences; ·
The pain of problems is a call to find solutions rather than a reason for unhappiness and inaction, so it’s silly, pointless, and harmful to be upset at the problems and choices that come at you (though it’s understandable); ·
We all evolve at different paces, and it’s up to you to decide the pace at which you want to evolve;
The process goes better if you are as accurate as possible in all respects, including assessing your strengths and weaknesses and adapting to them.
I believe that having principles is essential for getting what you want out of life. That is as true for groups of people (e.g., companies, schools, governments, foundations, etc.) as it is for individuals. While individuals operating individually can choose whatever values and principles they like, when working in a group the people must agree on the group’s values and principles. If the group is not clear about them, confusion and eventually gravitation toward the population’s averages will result. If the group’s values and principles are clear, their way of being (i.e., their culture) will permeate everything they do. It will drive how the people in the group set goals, identify problems, diagnose problems, design solutions and make sure that these designs are implemented.
While having a clearly conveyed great culture is important, that’s only half of the magic formula. The other half is having great people—i.e., people who have the values, abilities, skills that fit the organization’s culture. In other words, I believe that to have a great company you have to make two things great —the culture and the people. If these two things are great your organization can navigate the twists and turns to get you where you want to go.
Every organization works like a machine to achieve its goals. This machine produces outcomes. By comparing the outcomes to the goals, those running the machine can see how well the machine is working. This is the feedback loop that those who are responsible for the machine need to run well in order to improve the machine. Based on the feedback, the machine can be adjusted to improve. The machine consists of two big parts—the culture and the people. If the outcomes are inconsistent with the goals, something must be wrong with the machine, which means that something must be wrong with the culture and/or the people. By diagnosing what is wrong, designing improvements and implementing those improvements, the machine will evolve. Most importantly I value meaningful work and meaningful relationships that are obtained by striving for truth and excellence with great people.
1) I want Bridgewater to be a company in which people collectively work for what they want and not for what others want of them
2) Come up with the best independent opinions they can muster to move toward their goals
3) stress-test their opinions by having the smartest people they can find to challenge them so they can find out where they are wrong,
4) are wary about overconfidence, and good at not knowing
.5) wrestle with reality, experiencing the results of their decisions, and reflecting on what they did to produce them so that they can improve.
The best advice I can give you is to ask yourself what do you want, then ask ‘what is true’—and then ask yourself ‘what should be done about it.’ I believe that if you do this you will move much faster towards what you want to get out of life than if you don’t!
Most importantly, build the organization around goals rather than tasks. a) First come up with the best workflow design, sketch it out in an organizational chart, visualize how the parts interact, specify what qualities are required for each job, and, only after that is done, choose the right people to fill the jobs b) Organize departments and sub-departments around the most logical groupings. c) Make departments as self-sufficient as possible so that they have control over the resources they need to achieve the goals. d) The efficiency of an organization decreases and the bureaucracy of an organization increases in direct relation to the increase in the number of people and/or the complexity of the organization.
183) Tool: Maintain a procedures manual. 184) Tool: Use checklists. a) Don’t confuse checklists with personal responsibility. b) Remember that “systematic” doesn’t necessarily mean computerized. c) Use “double-do” rather than “double-check” to make sure mission-critical tasks are done correctly.
Constantly worry about what you are missing. a) Successful people ask for the criticism of others and consider its merit. Since 80% of the juice can be gotten with the first 20% of the squeezing, there are relatively few (typically less than five) important things Remember the 80/20 Rule, and Know What the Key 20% Is
Distinguish the important things from the unimportant things and deal with the important things first. a) Don’t be a perfectionist b) Since 80% of the juice can be gotten with the first 20% of the squeezing, there are relatively few (typically less than five) important things to consider in making a decision. Never say anything about a person you wouldn’t say to them directly, and don’t try people without accusing them to their face. Never say anything about a person you wouldn’t say to them directly, and don’t try people without accusing them to their face.
Don’t believe it when someone caught being dishonest says they have seen the light and will never do that sort of thing again. Chances are they will. The cost of keeping someone around who has been dishonest is likely to be higher than any benefits. A common error is to say, “We didn’t handle this well” rather than “Harry didn’t handle this well.” This occurs when people are uncomfortable connecting specific mistakes to specific people because of ego sensitivities. This creates dysfunctional and dishonest organizations. Since individuals are the most important building blocks of any organization and since individuals are responsible for the ways things are done, the diagnosis must connect the mistake to the specific individual by name. Someone created the procedure that went wrong, or decided we should act according to that procedure, and ignoring that fact will slow our progress toward successfully dealing with the problem.
Write down your weaknesses and the weaknesses of others to help remember and acknowledge them. It’s unhealthy to hide them because if you hide them, it will slow your progress towards successfully dealing with them. Conversely, if you don’t want them and you stare at them, you will inevitably evolve past them.
When you experience pain, remember to reflect. You can convert the “pain” of seeing your mistakes and weaknesses into pleasure. If there is only one piece of advice I can get you to remember it is this one. Calm yourself down and think about what is causing your psychological pain. Ask other objective, believable parties for their help to figure it out. Find out what is true. Don’t let ego barriers stand in your way. Remember that pains that come from seeing mistakes and weaknesses are “growing pains” that you learn from. Don’t rush through them. Stay in them and explore them because that will help build the foundation for improvement. It is widely recognized that 1) changing your deep-seated, harmful behavior is very difficult yet necessary for improvement and 2) doing this generally requires a deeply felt recognition of the connection between your harmful behavior and the pain it causes. Psychologists call this “hitting bottom.” Embracing your failures is the first step toward genuine improvement; it is also why “confession” precedes forgiveness in many societies. If you keep doing this you will learn to improve and feel the pleasures of it. It’s pretty easy to determine whether a person is reflective or deflective: self-reflective people openly and objectively look at themselves while deflective people don’t.
Distinguish open-minded people from closed-minded people. Open-minded people seek to learn by asking questions; they realize that what they know is little in relation to what there is to know and recognize that they might be wrong. Closed-minded people always tell you what they know, even if they know hardly anything about the subject being discussed. They are typically made uncomfortable by being around those who know a lot more about a subject, unlike open-minded people who are thrilled by such company.
Be wary of the arrogant intellectual who comments from the stands without having played on the field. And avoid that trap yourself.
Watch out for people who think it’s embarrassing not to know. They’re dangerous.
Know when to stop debating and move on to agreeing about what should be done. I have seen people who agree on the major issues waste hours arguing over details. It’s more important to do big things well than to do small things perfectly. Be wary of bogging down amid minor issues at the expense of time devoted to solidifying important agreements.
If it is your meeting to run, manage the conversation. There are many reasons why meetings go poorly, but frequently it is because of a lack of clarity about the topic or the level at which things are being discussed (e.g., the principle/machine level, the case at hand level, or the specific fact level). To manage the meetings well:
a) Make it clear who the meeting is meant to serve and who is directing the meeting.
b) Make clear what type of communication you are going to have in light of the objectives and priorities.
d) A small group (3 to 5) of smart, conceptual people seeking the right answers in an open-minded way will generally lead to the best answer.
e) 1+1=3. Two people who collaborate well will be about three times as effective as the two of them operating independently because they will see what the other might miss, they can leverage each other, and they can hold each other to higher standards. This symbiotic relationship of adding people to a group will have incremental benefits (2+1=4.25) up to a point at which there are no incremental gains and beyond which adding people produces incremental losses in effectiveness. That is because 1) the marginal benefits diminish as the group gets larger—e.g. two or three people might be able to cover most of the important perspectives so adding more people doesn't bring much more, and 2) larger group interactions are less efficient than smaller group interactions.
j) Achieve completion in conversations. The main purpose of discussion is to achieve completion and get in synch, which leads to decisions and or actions. Conversations often fail to reach completion. This amounts to a waste of time because they don’t result in conclusions or productive actions. When there is an exchange of ideas, especially if there is a disagreement, it is important to end it by stating the conclusions. If there is agreement, say it; if not, say that. Where further action has been decided, get those tasks on a to-do list, assign people to do them, and specify due dates. Write down your conclusions, working theories, and to-do’s in places that will lead to their being used as foundations for continued progress.
k) Have someone assigned to maintain notes in meetings and make sure follow-through happens. Generally speaking, to avoid distraction during the discussion itself, prioritizing follow-ups and assignments should be done afterwards.
Remember that almost everything good comes from having great people operating in a great culture. I cannot emphasize strongly enough how important the selection, training, testing, evaluation, and sorting out of people is. If you put the goals and the tasks in the hands of people who can do them well, and if you make crystal clear that they are personally responsible for achieving the goals and doing the tasks, they should produce excellent results. This section is about the people part of the feedback loop process, diagramed below.
a) Most importantly, find people who share your values. At Bridgewater, those key values are a drive for excellence, truth at all costs, a high sense of ownership, and strong character (by character, I mean the willingness to do the good but difficult things).
b) Look for people who are willing to look at themselves objectively and have character. These are not natural talents—they are qualities that anyone can acquire. They are also the qualities that have the biggest influence on whether or not I respect someone. They are essential for success.
c) Conceptual thinking and common sense are required in order to assign someone the responsibility for achieving goals (as distinct from tasks). ...
40) Recognize that the inevitable responsible party is the person who bears the consequences of what is done.
41) By and large, you will get what you deserve over time. The results that you end up with will reflect how you and your people learn to handle things. So take control of your situation and hold yourself and others accountable for producing great results. People who wish for a great result but are unwilling to do what it takes to get there will fail. ...
42) The most important responsible parties are those who are most responsible for the goals, outcomes, and machines (they are those higher in the pyramid). Give me someone who can effectively be responsible for an area—i.e., who can design, hire, and sort to achieve the goal, and I can be comfortable about all that is in that area. Therefore, they are the most important people to choose and manage well.
43) Choose those who understand the difference between goals and tasks to run things. Otherwise you will have to do their jobs for them.
45) Think about their very different values, abilities, and skills. Values are the deep- seated beliefs that motivate behaviors; people will fight for their values, and values determine people’s compatibility with others. Abilities are ways of thinking and behaving. Some people are great learners and fast processors; others possess common sense; still others think creatively or logically or with supreme organization, etc. Skills are learned tools, such as being able to speak a foreign language or write computer code. While values and abilities are unlikely to change much, most skills can be acquired in a limited amount of time (e.g., most master’s degrees can be acquired in two years) and often change in worth (e.g., today’s best programming language can be obsolete in a few years). It is important for you to know what mix of qualities is important to fit each role and, more broadly, with whom you can have successful relationships. In picking people for long-term relationships, values are most important, abilities come next, and skills are the least important.
There are two big differences in how people think that are due to the brain’s coming in two big halves and different people relying differently on them. This was explained by Caltech Professor Roger Sperry, who won a Nobel Prize in medicine for attributing these two ways of thinking to different reliances on the two hemispheres. As a result of this discovery, these two ways of thinking are called “left-brained” and “right-brained.” Professor Sperry helped us understand that:
The left hemisphere reasons sequentially, analyzes details, and excels at linear analysis. Left-brained thinkers do these things well. They are also called linear thinkers. When they excel at this type of thinking they are called “bright.”
The right hemisphere reasons holistically, recognizes themes, and synthesizes the big picture. Right-brained thinkers do these things well. People who think this way are also called lateral thinkers. Those who excel at this kind of thinking are called “smart.”
Long before I knew that there was a Professor Sperry I saw these differences. I bet you’ve seen them too. On a scale of -5 to +5 – left-brained to right-brained – where do you think you fall? How confident are you that your self-assessment is right? Understand that different ways of seeing and thinking make people suitable for different jobs. Since nature created different ways of thinking and since nature never creates anything without a purpose, each way of thinking has purposes. Often, thinking well for some purposes necessitates thinking poorly for others. It is highly desirable to understand one’s own ways, and others’ ways, of thinking, and their best applications. While there is no best quality, there are certainly some qualities that are more suitable for some jobs (e.g., being a math wiz is important for a job that requires a math wiz). So don’t treat everyone the same. Remember that people who see things and think one way often have difficulty communicating and relating to people who see things and think another way.
Keep in mind how difficult it is to convey what it means to think in an alternative way for the same reason it would be difficult to convey what the sense of smell is to someone who doesn’t have the ability to smell.
56) Select the appropriate people and tests for assessing each of these qualities and compare the results of those assessments to what you’ve decided is needed for the job. Synthesize the results of those tests to see if there is a “click.”
a) Remember that people tend to pick people like themselves, so pick interviewers who can identify what you are looking for. For example, if you’re looking for a visionary, pick a visionary to do the interview where you test for vision. If there is a mix of qualities you’re looking for, put together a group of interviewers who embody all of these qualities collectively. Don’t choose interviewers whose judgment you don’t trust (in other words, choose believable interviewers).
b) Understand how to use and interpret personality assessments. These can be a fantastic tool in your arsenal for quickly getting a picture of what people are like—abilities, preferences, and style. They are often much more objective and reliable than interviews.
c) Pay attention to people’s track records.
59) Don’t hire people just to fit the first job they will do at Bridgewater; hire people you want to share your life with.
65) Understand the differences between managing, micromanaging, and not managing. Micromanaging is telling the people who work for you exactly what tasks to do and/or doing their tasks for them. Not managing is having them do their jobs without your oversight and involvement. Managing means: 1) understanding how well your people and designs are operating to achieve your goals and 2) constantly improving them. To be successful, you need to manage.
69) Conduct the discussion at two levels when a problem occurs: 1) the “machine” level discussion of why the machine produced that outcome and 2) the “case at hand” discussion of what to do now about the problem.
71) Clearly assign responsibilities. Eliminate any confusion about expectations and ensure that people view the failure to achieve their goals and do their tasks as personal failures. The most important person is the one who is given the overall responsibility for accomplishing the mission and has both the vision to see what should be done and the discipline to make sure it’s accomplished by the people who do the tasks.
72) Hold people accountable and appreciate them holding you accountable.
73) Avoid the “sucked down” phenomenon. This occurs when a manager is pulled down to do the tasks of a subordinate without acknowledging the problem. However, the sucked down phenomenon is typically the manager’s response to subordinates’ inabilities to do certain tasks or the manager’s failure to properly redesign how the responsibilities should be handled in light of changed circumstances. You can tell this problem exists when the manager focuses more on getting tasks done than on operating his machine.
76) Don’t worry if your people like you; worry about whether you are helping your people and Bridgewater to be great. You shouldn’t be a manager if you have problems confronting people or if you put being liked above ensuring your people succeed. Tool: Use daily updates as a tool for staying on top of what your people are doing and thinking. Daily updates are brief descriptions of what the person did that day, what they are planning to do the next day, their problems, their questions, and their observations. They typically take about five minutes to write and do wonders for staying in touch.
83) Vary your involvement based on your confidence. Management largely consists of scanning and probing everything for which you are responsible to identify suspicious signs. Based on what you see, you should vary your degree of digging, doing more of it for people and areas that look more suspicious, and less of it where probing instills you with confidence. With the right tools in place and performing well, your scanning will include both reviewing the output of these tools (e.g., “issues log,” “metrics,” “daily updates,” and “checklists”) and spot-checking.
88) Escalate when you can’t adequately handle your responsibilities, and make sure that the people who work for you do the same. Escalating means saying that you don’t believe that you can successfully handle a situation and that you are passing the “responsible party” (RP) job to someone else. The person you are escalating to—the person to whom you report—can then decide whether to coach you through it, take control, have someone else handle it, or do something else. However, the boss should avoid being drawn into doing the job of the person who is failing without exploring why the job has not been done successfully without help.
132) Do not lower the bar. If a person can’t operate consistently with our requirements of excellence and radical truth and can’t get to the bar in an acceptable time frame, they have to Recognize that perceiving problems is the first essential step toward great management. As in nature, if you can’t see what’s happening around you, you will deteriorate and eventually die off. People who can 1) perceive problems; 2) decide what to do about them; and 3) get these things done can be great managers. ...
136) Understand that problems are the fuel for improvement. “Taste the soup.” A good restaurateur constantly tastes the food that is coming out of his kitchen and judges it against his vision of what is excellent. A good manager needs to do the same.
142) Don’t use the anonymous “we” and “they,” because that masks personal responsibility—use specific names. For example, don’t say “we” or “they” handled it badly. Also avoid: “We should...” or “We are...”Who is “we”? Exactly who should, who made a mistake, or who did a great job? Use specific names. Don’t undermine personal accountability with vagueness. When naming names, it’s also good to remind people of related principles like “mistakes are good if they result in learning.”
143) Be very specific about problems; don’t start with generalizations. For example, don’t say, “Client advisors aren’t communicating well with the analysts.” Be specific: name which client advisors aren’t doing this well and in which ways. Start with the specifics and then observe patterns.
*** Problem Diagnosis and Eradication
144) Tool: Use the following tools to catch problems: issues logs, metrics, surveys, checklists, outside consultants, and internal auditors.
1) Issues log: A problem or “issue” that should be logged is easy to identify: anything that went wrong. The issues log acts like a water filter that catches garbage. By examining the garbage and determining where it came from, you can determine how to eliminate it at the source. You diagnose root causes for the issues log the same way as for a drilldown (explained below) in that the log must include a frank assessment of individual contributions to the problems alongside their strengths and weaknesses. As you come up with the changes that will reduce or eliminate the garbage, the water will become cleaner. In addition to using issues logs to catch problems, you can use them to measure the numbers and types of problems, and they can therefore be effective metrics of performance. A common challenge to getting people to use issues logs is that they are sometimes viewed as vehicles for blaming people. You have to encourage use by making clear how necessary they are, rewarding active usage, and punishing non-use. If, for example, something goes wrong and it’s not in the issues log, the relevant people should be in big trouble. But if something goes wrong and it’s there (and, ideally, properly diagnosed), the relevant people will probably be rewarded or praised. But there must be personal accountability.
2) Metrics: Detailed metrics measure individual, group, and system performance. Make sure these metrics aren’t being “gamed” so that they cease to convey a real picture.
146a) Problems that have good, planned solutions are completely different from those that don’t. The spectrum of badness versus goodness with problems looks like this: a) They’re unidentified (worst); b) Identified but without a planned solution (better); c) Identified with a good, planned solution (good); and d) Solved (best). However, the worst situation for morale is the second case: identified but without a planned solution. So it’s really important to identify which of these categories the problem belongs to.
1)Ask the person who experienced the problem: What suboptimality did you experience?
2) Ask the manager of the area: Is there a clear responsible party for the machine as a whole who can describe the machine to you and answer your questions about how the machine performed compared with expectations? Who owns this responsibility? • Do not mask personal responsibility—use specific names.
3) Ask the responsible party: What is the “mental map” of how it was supposed to work? • A “mental map” is essentially the visualization of what should have happened. • To be practical, “mental maps” (i.e., the designs that you would have expected would have worked well) should account for the fact that people are imperfect. They should lead to success anyway.
4) Ask the owner of the responsibility: What, if anything, broke in this situation? Were there problems with the design (i.e., who is supposed to do what) or with how the people in the design behaved? • Compare the mental map of “what should have happened” to “what did happen” in order to identify the gap. • If the machine steps were followed, ask, “Is the machine designed well?” If not, what’s wrong with the machine?
5) Ask the people involved why they handled the issue the way they did. What are the proximate causes of the problem (e.g., “Did not do XYZ”)? They will be described using verbs—for example, “Harry did XYZ.” What are the root causes? They will be descriptions. For example: inadequate training/experience, lack of vision, lack of ability, lack of judgment, etc. In other words, root cause is not an action or a reaction—it is a reason. • Be willing to touch the nerve.
6) Ask the people involved: Is this broadly consistent with prior patterns (yes/no/unsure)? What is the systematic solution? How should the people / machines / responsibilities evolve as a result of this issue? • Confirm that the short-term resolution of the issue has been addressed. • Determine the steps to be taken for long-term solutions and who is responsible for those steps.
Specifically: a. Are there responsibilities that need either assigning or greater clarification?
b. Are there machine designs that need to be reworked?
c. Are there people whose fit for their roles needs to be evaluated?
151) Remember that a root cause is not an action but a reason. It is described by using adjectives rather than verbs. Keep asking “why” to get at root causes, and don’t forget to examine problems with people. In fact, since most things are done or not done because someone decided to do them or not do them a certain way, most root causes can be traced to specific people, especially “the responsible party.” When the problem is attributable to a person, you have to ask why the person made the mistake to get at the real root cause, and you need to be as accurate in diagnosing a fault in a person as you are in diagnosing a fault in a piece of equipment. For example, a root cause discovery process might proceed like this: - “The problem was due to bad programming.” - “Why was there bad programming?” - “Because Harry programmed it badly.” - “Why did Harry program it badly?” - “Because he wasn’t well trained and because he was in a rush.” - “Why wasn’t he well trained? Did his manager know that he wasn’t well trained and let him do the job anyway, or did he not know?” Ultimately it will come down to what the people or the design is like.
152) Identify at which step failure occurred in the 5-Step Process. If a person is chronically failing it is due to either lack of training or lack of ability. Which was it? At which of the five steps did the person fail? Different steps require different abilities.
1. Setting goals: This requires big-picture thinking, vision, and values that are consistent with those of our community. (It is helpful to ask whether the responsible party lost sight of the goals or whether he or she set goals that are inconsistent with Bridgewater’s.)
2. Perceiving problems: This requires perception, the ability to synthesize, and an intolerance of badness (i.e., some people see badness but aren’t sufficiently bothered by it to push themselves to eliminate it). Of course, having perspective (typically gained via experience) helps at all steps.
3. Diagnosis: This requires logic, assertiveness, and open-mindedness. You must be willing to have open and/or difficult discussions to get at the truth.
4. Design: This requires creativity and practical visualization.
5. Doing the tasks: This requires determination and self-discipline.
If you 1) identify at which of these steps the chronic failures are occurring and 2) see which, if any, of these abilities the person is short of, you will go a long way toward diagnosing the problem. ==========
158) The most common reasons managers fail to produce excellent results or escalate are:
a. They are too removed.
b. They have problems discerning quality differences.
c. They have lost sight of how bad things have become because they have gradually gotten used to their badness (the “frog in the boiling water problem”).
d. They have such high pride in their work that they can’t bear to admit they are unable to solve their own problems. e. They fear adverse consequences from admitting failure.
162) Use the following “drilldown” technique to gain an 80/20 understanding of a department or sub-department that is having problems. A drilldown is the process by which someone who wants to do so can gain a deep enough understanding of the problems in an area as well as the root causes, so that they can then go on to design a plan to make the department or sub-department excellent. It is not a “diagnosis,” which is done for each problem. A manager doing ongoing diagnosis will naturally understand his areas well and won’t have to do a drilldown. Drilling down is a form of probing, though it is broader and deeper. Done well, it should get you almost all the information needed to turn a department around in about five hours of effort.
A drilldown takes place in two distinct steps:
1) listing problems and
2) listing causes/diagnosing.
It is followed by 3) designing a plan.
If done well, getting informed via the first two steps typically takes about four hours (give or take an hour), with the first step of listing the problems typically taking one to two hours and the second step of diagnosing them typically taking two to four hours, if done efficiently.
Step 1—List the problems. Don’t confuse problems with possible solutions. For example, not having enough capacity is not a “problem”; it might cause problems, but it’s not a problem. Having people work so late that they might quit, getting out reports too late, etc., might be problems that are caused by a lack of capacity. But the lack of capacity itself is not a problem. To fix problems, you need to start with the specific problems and address them one by one and come up with very specific solutions.
Step 2—Identify root causes. Root causes are the deep-seated reasons behind the actions that caused the problems. It is important to distinguish between proximate causes, which are superficial reasons for what happened (e.g., “I missed the train because I didn’t check the train schedule”), and root causes (e.g., “I didn’t check the schedule because I am forgetful”). Typically a proximate cause is the action that led to the problem while a root cause is the fundamental reason that action occurred. So, when diagnosing, if you are describing what happened or didn’t happen to cause the problem, you are probably describing proximate causes. When you start describing the qualities that were behind these actions, you are probably getting at the root causes. To get at the root cause, keep asking why. For example, if the problem is that people are working late and the direct cause was that there wasn’t enough capacity, then ask why there wasn’t enough capacity. Then you will get closer to the root cause. If your machine is producing outcomes that you don’t want, either the design is flawed or the parts/people that you dropped into the design are malfunctioning.
Most, but not all, problems happen because 1) it isn’t clear who the “responsible party” is for making sure things go well or 2) the responsible party isn’t handling his or her responsibilities well (in other words, isn’t operating according to the principles to eliminate the problem). So first ask, “Is it clear who the responsible party is?” If not, specify that. If it is clear, then ask, “Why isn’t he or she doing a good job?” There are two possible reasons for someone doing a poor job: insufficient training or insufficient ability. Though it is essential to connect problems to the responsible parties, this can be difficult if the responsible parties don’t acknowledge their mistakes and fail to diagnose why they made the mistakes. Still, clarity about responsibility and the problems’ root causes must be achieved because otherwise there is no hope for improvement. If the responsible parties do not explicitly take responsibility for ensuring that their areas operate smoothly, their areas will not operate smoothly.
An important first step toward achieving clarity is to remove the mentality of blame and credit, because it stands in the way of accurately understanding problems, and that’s a prerequisite for producing improvements. Also, it is important not to judge too quickly what the root causes are. Instead, you should observe the patterns of problems using the issues log as a tool and discuss with the responsible parties what the root causes might be each time a problem arises. You probably won’t initially be able to come to conclusions with a high degree of confidence, because there are many possible reasons for any one problem. But over time, the problems’ patterns and causes will become clear to everyone. As mentioned, there are two possible reasons why the responsible party handled something badly: 1) the responsible party didn’t encounter this problem enough times previously to learn from it and prevent it in the future (by using the principles) or 2) the responsible party is unsuited for that job. And there are also two possible reasons the person is not suited for that job: 1) not enough experience or training and 2) lack of values and/or abilities required to do the job well.
So getting at the root causes is largely a matter of figuring out:
1. Who is the responsible party for what went wrong?
2. Did that person encounter the problem enough times that he or she should have either learned how not to repeat it or elevated it to someone who could have helped learn how to solve it?
The conclusions could be the following:
1) If the person did encounter the problem enough times to have resolved or elevated it, then the person is not suitable for the job
2) if the person did not encounter the problems enough times to resolve or elevate it, what are the probable root causes?
The most common root causes are:
1) the person is not suitable for the job in some way (doesn’t learn from mistakes, doesn’t have a high sense of responsibility, is lazy, etc.);
2) the design of the process is flawed (e.g., the person is doing things in a way that can be improved); or
3) there is no possible solution.
If it’s the first root cause, the person should have their job changed; if it’s the second, you and the person need to properly diagnose the problem and come up with a different process that will work; and if it’s the third, you won’t know that until you have thoroughly explored whether the process can be remediated.
That second alternative of trying to find a better process takes time and patience (involving you and the person properly diagnosing the problem and finding a different approach that works). Normally, this is the point at which most companies and people fail. That is because people often take the identification of a “mistake” as the equivalent of an accusation that they are flawed (dumb, lazy, etc.), so they become defensive. If instead they view the exercise as an investigation into how the process might be flawed, it’s easier to make progress. So when criticizing, it’s sometimes helpful to convey explicitly the point of the exercise: mutually diagnosing the problem and exploring the pros and cons of alternative approaches. You both need to be mindful that doing this well typically takes time and patience. One of the purposes of the brainstorming session is to do this, ideally with an agreed diagnosis resulting from it.
Step 3—Create a plan (brief notes): -Look at each root cause and ask yourself what should be done about it. -Creating a plan is like writing a movie script in that you visualize who will do what through time in order to achieve the goal. -Step away from the group to reflect and work on the plan, then bring it back to the group to discuss and modify. -When developing the plan, iterate through multiple possibilities and play them out in time to help determine the best choice. -Make sure to assign who is supposed to do what with rough target dates for achieving individual tasks of the plan. Once the plan design is complete, make sure the tasks, responsible parties, and timelines are reasonable and doable. -While everyone does not need to agree with the plan, it is important that the key people agree that it will work.
Step 4—Implement the plan (brief notes): - Give each person a monthly to-do list to provide clarity and transparency around responsibilities and expectations for that month. Then plot the progress in open, monthly meetings with all the relevant parties. Explicitly assess how the plan is working and deal with problems that aren’t being resolved. -Make sure to hold responsible parties accountable for target dates and develop metrics around how they are meeting their commitments. -Regularly look at that list of assigned tasks to track progress and determine if any adjustments are needed. -Create transparency around the plan by posting it publicly and reviewing it regularly with the group. This helps people see the ways in which all of the problems are being addressed and reinforces accountability. Do not exclude any relevant people from the drilldown: besides losing the benefit of their ideas, you disenfranchise these people from the game plan and reduce their sense of ownership. Remember that people tell you things they want and tend not to be self-critical.
It is your job as a manager to get at truth and excellence, not to make people happy. For example, the correct path might be to fire some people and replace them with better people, or to put people in jobs they might not want, etc. The brainstorming session must include a discussion of people’s weaknesses and failings to get at truth and excellence. Everyone’s objective must be to get at the best answer, not the answer that will make people happy. This is especially true for managers. In the long run, the best answers will be the ones that make the people we want to be at Bridgewater happiest. Before moving forward, take the time to reflect on how the machine worked. By diagnosing what went right and what went wrong (especially what went wrong), you can see how the machine is operating and how it should be improved. People who are just focused on what they should do next are overly focused on the tasks at hand and not on how the machine is working; so they don’t make sustainable progress. Your ability to do this is partially innate but can be improved with practice.
167) Remember: a) You are designing a “machine” or system that will produce outcomes. This machine will consist of distinct parts (i.e., people and other resources as well as the way they interact with each other).
b) Beware of paying too much attention to what is coming at you and not enough attention to what your responsibilities are or how your machine should work to achieve your goals. Constantly compare your machine’s outcomes to your goals in order to reflect on how well the machine is operating. Examine both the design and how the individual parts are functioning.
171) Recognize that design is an iterative process; between a bad “now” and a good “then” is a “working through it” period. That “working through it” period involves trying processes and people out, seeing what goes well or poorly, learning from the iterations, and moving toward having the right people in the ideal systematic design. Even with a good future design picture in mind, it will naturally take time, testing, mistakes, and learning to get to a good “then” state.
174) Most importantly, build the organization around goals rather than tasks. As an example of building the organization around goals rather than tasks, we have traditionally had a marketing department (goal: to market) that is separate from our client service department (goal: to service clients), even though they do similar things and there would be advantages to having them work together. But because marketing and servicing clients are two distinct goals, we have a separate department for each. If they were merged, the department head, salespeople, client advisors, analysts, and others would be giving and receiving conflicting feedback. If asked why clients were receiving relatively poor attention, the answer might be: “We have incentives to raise sales.” Asked why they weren’t making sales, the merged department might explain that they need to take care of their clients. Keeping the two areas separate gives each department a clear focus and the appropriate resources to achieve its goals, makes the diagnosis of resource allocations more straightforward, and reduces “job slip.”
Of course, when building departments around goals, your goals have to be the right size to warrant these resources. An organization might not be big enough to warrant having a few salesmen and its own analytical group. Bridgewater has successfully evolved from a one-cell organization, in which most people were involved in everything, to the current multi- cell organization because we retained our ability to efficiently focus as the organization grew. Also, I want to make clear that temporarily sharing or rotating resources is OK, and is not the same thing as a merging of responsibilities. I will discuss merging later in this document, as well the coordination required to maintain focus in large organizations.
174) First come up with the best workflow design, sketch it out in an organizational chart, visualize how the parts interact, specify what qualities are required for each job, and, only after that is done, choose the right people to fill the jobs (based on how their capabilities and desires match up with the requirements).
175) Build your organization from the top down. An organization is the opposite of a building— the foundation is at the top. The head of the organization is responsible for designing the organization and for choosing people to fill its boxes. Therefore, make sure you hire managers before their direct reports. Managers can then help design the machine and choose people who complement the machine.
a) Everyone must be overseen by a believable person who has high standards. Without this strong oversight, there is potential for inadequate quality control, inadequate training, and inadequate appreciation of excellent work. Do not “just trust” people to do their jobs well.
177) Constantly think about how to produce leverage. For example, to make training as easy to leverage as possible, document the most common questions and answers through audio, video, or written guidelines and then assign someone to regularly organize them into a manual. Technology can do most tasks, so think creatively about how to design tools that will provide leverage for you and the people who work for you.
a) You should be able to delegate the details away. If you can’t, you either have problems with managing or training or you have the wrong people doing the job. The real sign of a master manager is that he doesn’t have to “do” practically anything. Of course, a great manager has to hire and oversee the people who do things; but a “supreme master” manager can even hire a person or two to do this and has achieved such leverage that things are effortlessly running superbly. Of course, there is a continuum related to this. The main message I’m trying to convey is that managers should strive to hire, train, and oversee in a way in which others can superbly handle as much as possible on their own. Managers should view the need to get involved in the nitty-gritty themselves as a bad sign.
c) Use “leveragers.” Leveragers are capable of doing a lot to get your concepts implemented. Conceptualizing and managing are most important and take only about 10% of the time needed for implementing; so if you have good leveragers, you can accomplish a lot more with relative ease.
***Proceedure Manual and Managing people through checklist tasks
183) Tool: Maintain a procedures manual. This is the document in which you describe how all of the pieces of your machine work. There needs to be enough specificity so that operators of the different pieces of the machine can refer to the manual to help them do their job. The manual should be a living document that includes output from the issues log so that mistakes already identified and diagnosed aren’t repeated. It prevents forgetting previous learning and facilitates communication.
184) Tool: Use checklists. When people are assigned tasks, it is generally desirable to have these captured on checklists so they can check off each item as it is done. If not, there is a risk that people will gradually not do the agreed tasks or there will be lack of clarity. Crossing items off a checklist will serve as a task reminder and confirmation of what has been done.
a) Don’t confuse checklists with personal responsibility. People should be expected to do their job well, not just what is on their checklists.
c) Use “double-do” rather than “double-check” to make sure mission-critical tasks are done correctly. When people double-check someone else’s work, there is a much lower rate of catching errors than when two parties independently do the work and the results are compared. Double-doing is having two different people doing the same task on the same job so that two independent answers are derived. By comparing them you will not only assure better answers but you will see the differences in people’s performances and make much more rapid improvement. I use double-dos in critical areas such as finance, where large amounts of money are involved.
187) Have good controls so that you are not exposed to the dishonesty of others and trust is never an issue. b) Remember: There is no sense in having laws unless you have policemen (auditors).
190) RECOGNIZE THE POWER OF KNOWING HOW TO DEAL WITH NOT KNOWING
192a) Embrace the power of asking: “What don’t I know, and what should I do about it?” Generally you should find believable people and ask their advice, remembering that you are looking to understand their reasoning rather than get their conclusions. b) Finding the path to success is at least as dependent on coming up with the right questions as coming up with answers. Successful people are great at asking the important questions and then finding the answers. When faced with a problem, they first ask themselves if they know all the important questions about it; they are objective in assessing the probability that they have the answers; and they are good at open-mindedly seeking believable people to ask.
193) Remember that your goal is to find the best answer, not to give the best one you have. The answer doesn’t have to be in your head; you can look outside of you. In life the goal is for you to do the right thing, considering the probability that you might be wrong. So it is invaluable to know what you don’t know so that you can figure out a way to find out and/or to get help from others.
195a) Successful people ask for the criticism of others and consider its merit.
195b) Triangulate your view. Never make any important decisions without asking at least three believable people. Don’t ask them for their conclusions or just do what they tell you to do. Understand, visualize, and assess their reasoning to see if it makes sense to you. Ask them to probe your own reasoning. That’s critical to your learning as well as to your successful handling of your responsibilities.
197a) The cost of a bad decision is equal to or greater than the reward of a good decision, so knowing what you don’t know is at least as valuable as knowing.
b) Recognize opportunities where there isn’t much to lose and a lot to gain, even if the probability of the gain happening is low. It is a reality that there are always multiple possibilities and nothing is certain. All decisions are therefore risk/reward bets. Know how to pursue fabulous risk/reward ratios that have a huge upside and very little downside, albeit a small probability of happening. My life has been filled with these.
c) Understand how valuable it is to raise the probability that your decision will be right by accurately assessing the probability of your being right. I often observe people giving opinions as soon as they have them, which seems at about the point that they think there’s more than a 50% chance of them being right. Often they don’t pay any attention to the value of raising the probability of being right (e.g., from 51% to 85%) by reflecting harder on whether the answer is right and doing the investigations and double-checking with others to make sure that the answer is right. Remember that, in an expected value sense, raising the probability of being right (e.g., from 51% to 85%) can be worth more than just going from probably wrong (e.g., 45%) to probably being right (e.g., 51%) because we are all playing probabilities. Think about the effects of altering the probabilities of achieving must-dos: if you have a 51% probability of handling a “must-do” correctly, it means that only a bit more than half of your must-dos will be done appropriately, whereas an 85% probability of handling a decision well means that only 15% of the must-dos will be handled badly.
198) REMEMBER THE 80/20 RULE, AND KNOW WHAT THE KEY 20% IS
199) Distinguish the important things from the unimportant things and deal with the important things first.
a) Don’t be a perfectionist, Be an effective imperfectionist. Solutions that broadly work well (e.g., how people should contact each other in the event of crises) are generally better than highly specialized solutions (e.g., how each person should contact each other in the event of every conceivable crisis), especially in the early stages of a plan.
b) Since 80% of the juice can be gotten with the first 20% of the squeezing, there are relatively few (typically less than five) important things to consider in making a decision. For each of them, the marginal gains of studying them past a certain point are limited.
200) Think about the appropriate time to make a decision in light of the marginal gains made by acquiring additional information versus the marginal costs of postponing the decision.
201) Make sure all the “must do’s” are above the bar before you do anything else. First, distinguish between your “must do’s” and your “like to do’s”. Don’t overlook any “must do’s,” and don’t mistakenly slip the “like to do’s” onto the list. Then, get all the “must do’s” above the bar. Then get all the “must do’s” excellent. If you have time, turn to the “like to do’s” and try to get them above the bar. Only if you have time (though you certainly will not if you are thinking broadly), turn toward making things perfect. Chances are, you won’t have to deal with the unimportant things, which is better than not having time to deal with the important things. I often hear people say, "Wouldn’t it be good to do this or that,” referring to nice-to-do’s rather than must-do’s that have to be above the bar. Chances are, they are being distracted from far more important things that need to be done well.
204a) When you ask someone whether something is true and they tell you that “It’s not totally true,” it’s probably true enough.
210) Don’t try to please everyone. Not everyone is going to be happy about every decision you make, especially the decisions that say they can’t do something.
I wish everyone wrote down their principles. I wish I could read and compare the principles of all the people I’m interested in— Steve Jobs, Albert Einstein, people running for political office, people I share my life with, etc. I'd love to know what they value most and what principles they use to get what they want. Imagine how great that would be—e.g. imagine how much valuable fundamental thinking could be harnessed. I hope that my doing this will encourage others to do the same.
Sometimes when I know that I don’t know which way the coin is going to flip, I try to position myself so that it won’t have an impact on me either way. In other words, I don’t make an inadvertent bet. I try to limit my bets to the limited number of things I am confident in.
I do not mean that you should say everything you think, just that what you do say matches your thoughts. I believe that our society's “mistakephobia” is crippling, a problem that begins in most elementary schools, where we learn to learn what we are taught rather than to form our own goals and to figure out how to achieve them. We are fed with facts and tested and those who make the fewest mistakes are considered to be the smart ones, so we learn that it is embarrassing to not know and to make mistakes. Our education system spends virtually no time on how to learn from mistakes, yet this is critical to real learning. As a result, school typically doesn’t prepare young people for real life—unless their lives are spent following instructions and pleasing others. In my opinion, that’s why so many students who succeed in school fail in life.
I have been very lucky because I have had the opportunity to see what it’s like to have little or no money and what it’s like to have a lot of it. I’m lucky because people make such a big deal of it and, if I didn’t experience both, I wouldn’t be able to know how important it really is for me. I can’t comment on what having a lot of money means to others, but I do know that for me, having a lot more money isn’t a lot better than having enough to cover the basics. That’s because, for me, the best things in life—meaningful work, meaningful relationships, interesting experiences, good food, sleep, music, ideas, sex, and other basic needs and pleasures— are not, past a certain point, materially improved upon by having a lot of money. For me, money has always been very important to the point that I could have these basics covered and never very important beyond that. That doesn’t mean that I don’t think that having more is good–it’s just that I don’t think it’s a big deal. So, while I spend money on some very expensive things that cost multiples relative to the more fundamental things, these expensive things have never brought me much enjoyment relative to the much cheaper, more fundamental things. They were just like cherries on the cake. For my tastes, if I had to choose, I’d rather be a backpacker who is exploring the world with little money than a big income earner who is in a job I don’t enjoy. (Though being in a job that provides me with what I want is best of all, for me).
Also, from having come from having next-to-nothing to having a lot, I have developed a strong belief that, all things being equal, offering equal opportunity is fundamental to being good, while handing out money to capable people that weakens their need to get stronger and contribute to society is bad. Darwin is reported to have said, “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.” Your ability to see the changing landscape and adapt is more a function of your perceptive and reasoning abilities than your ability to learn and process quickly. Your very unique power of reflectiveness—i.e., your ability to look at yourself, the world around you, and the relationship between you and the world—means that you can think deeply and weigh subtle things to come up with learning and wise choices. Asking other believable people about the root causes of your pain in order to enhance your reflections is also typically very helpful— especially others who have opposing views and who share your interest in finding the truth rather than being proven right. If you can reflect deeply about your problems, they almost always shrink or disappear, because you almost always find a better way of dealing with them than if you don’t face them head on. The more difficult the problem, the more important it is that you think hard about it and deal with it. After seeing how effectively facing reality—especially your problems, mistakes and weaknesses— works, I believe you will become comfortable with it and won’t want to operate any other way.
An example of As I mentioned in the first chapter, you don’t have to know everything to get what you want. You just have to be honest with yourself about what you don’t know and know who to ask for help. As I mentioned earlier, I believe that nature is symbiotic—and that we must give to it for it to give back. The organization Outward Bound has a concept that is helpful in thinking about the optimal pace of personal evolution. They speak of a comfort zone, a stretch zone and a panic zone. It’s best to spend most of your time in the stretch zone.
Thomas Edison said about failure: “I have not failed. I’ve just found 10,000 ways that don’t work.” “I am not discouraged, because every wrong attempt discarded is another step forward.” “Results! Why, man, I have gotten a lot of results. I know several thousand things that won’t work.” “When I have fully decided that a result is worth getting I go ahead of it and make trial after trial until it comes.” “Many of life’s failures are men who did not realize how close they were to success when they gave up.”
The importance of a skill will vary according to the job. The more knowledge-dependent and independent in nature the job is (e.g., a programmer or lawyer whose job isn’t to think about the direction of the company), the more relevant the required skills are. Child psychologists, dog trainers, and other behavior modification specialists will tell you that constant, no-exception feedback is fundamental to good training. Everyone is wrestling with some things, but most people don’t talk about them—some people don’t like to probe you about your weaknesses because they think it’s unkind or awkward. And it’s often difficult for us to see and accept our own weaknesses. So when you are really in synch with others about what you’re wrestling with, that is a great step forward, because this feedback is probably true.