Morgan Housel: What I Believe Most

Written by Sean Murphy. Posted in Rules of Thumb, skmurphy

Morgan Housel (@morganhousel) documented ten insights in “What I Believe Most” (July 5, 2017), here are my top four that I think are the most useful advice for bootstrapping entrepreneurs.

Morgan Housel: What I Believe Most

Morgan Housel started as a financial analyst for the Motley Fool in 2007. He joined the Collaborative Fund as a Partner in August 2016. I had written about his lessons learned from writing about the economy in his 3,000th column “I’m Just Now Realizing How Stupid We Are” in “Morgan Housel’s Lessons Learned Writing on the Economy.”

Plan How To Survive If You Are Wrong

Investing is a game of probabilities, and almost all probabilities are less than 100%. So you’re going to be wrong and lose sometimes, even when the odds were in your favor. The late investor Peter Bernstein: “You just have to be prepared to be wrong and understand that your ego had better not depend on being proven right. Being wrong is part of the process.  Survival is the only road to riches.”
Morgan Housel “What I Believe Most”

Never test the depth of the pool with both feet: have a contingency plan for your current initiative. The Kelly Criterion to bet “edge over odds” or to bet the fraction of your bankroll that is “expected net winnings” divided by “net winnings if you win” is a good rule of thumb for how much to invest in any one initiative based on it’s expected payoff and your chance of seeing that payoff.

“Experiment patiently, accept failures, plant seeds, protect saplings, and double down when you see customer delight. A customer-obsessed culture best creates the conditions where all of that can happen. […] Most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably being slow. Plus, either way, you need to be good at quickly recognizing and correcting bad decisions. If you’re good at course correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.”
Jeff Bezos in “2016 Letter to Shareholders” [EDGAR version] (Apr-12-2017)

Align The Interests of All Of Your Stakeholders

The best results happen when your interests align with others’. This sounds obvious but few business models truly scratch every stakeholder’s itch. Once you view businesses as a collection of people trying to solve each other’s problems, with some groups that can be taken advantage of for a period of time but never all of the time, you see investments mostly through the lens of aligning interests of everyone involved.
Morgan Housel “What I Believe Most”

Business is situated in community and a social context: a good reputation as fair dealer committed to the values of the community, as evidenced by actual kindness and charity will create more value in the long run than treating every transaction as the last one you will ever do with the other party.

You meet people who have a clear understanding of their own needs and seem to spend no time on anything else. But the deals that they make seem to based only on fear and threat.

To create real opportunities in your own business requires that you explore and understand the needs and aspirations of your current and potential customers. To bring them ideas that will improve their lives and businesses requires that they trust you have their interests at heart when they talk about current problems that may expose their weaknesses and shortcomings.

Of course we have to make a profit for our businesses to continue, but there are other gains that come from entrepreneurship beyond the financial that lead us to invest in our employees education, to invest in our communities and to “leave a little money on the table” when dealing with partners and suppliers in the interest of good will and future relationships.

Individuals Can Conceive of Creative Breakthroughs But It Takes a Team To Make It a Reality

Amazing things rarely happen outside of teams. And teams only work when everyone is confident enough to push back when they see problems, yet understands that diverse thinking often means moving ahead with things you disagree with. It is a hard balance to strike.
Morgan Housel “What I Believe Most”

To make your creative insights a reality requires building a team of complementary experts. The first step is to get the idea out of your head an expressed clearly. Next is determining what expertise you will need on the team to help you explore, implement, and verify potential solutions.

Competitive Edge: Learning Faster, Empathy, Effective Communication, Experimentation, and Patience

There are five sources of edge:

  1. Learn faster than your competition.
  2. Empathize with stakeholders more than your competition.
  3. Communicate more effectively than your competition.
  4. Be willing to fail more than your competition.
  5. Wait longer than your competition.

Morgan Housel “What I Believe Most”

This is the punchline from Housel’s “Sustainable Sources of Competitive Advantage.” He elaborates on “willing to fail” as experimentation in “The Power of Failing Well.” I think the most difficult two to master are the first and fourth: extracting more learning from situations than competitors do and being willing to invest in experimentation.

“People want to select a solution not test possible answers. This leads many organizations to follow what others do.”
Michael Mainelli and Ian Harris in “The Price of Fish”

As I mentioned in Planning and Reflection: “Markets continually evolve, forcing each firm to run it’s own “Red Queen Race,” running faster and faster (or learning more and more) just to maintain market share. But action without reflection is rarely effective.

“The ability to learn faster than competitors may be the only sustainable competitive advantage.”
Arie P. de Geus in “Planning as Learning” in HBR March-April 1988

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