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The conversation opens by contrasting tactics with strategy and defining strategy as a philosophy of becoming. Several examples, including Microsoft, Yahoo, and Starbucks, illustrate how strategy shapes long-term direction.
the mistake people make is if you find yourself saying I just need to get the word out I've done all the hard part now I just need to get the word out you haven't done the hard part whatyou've done is waited for a
miracle I suppose I want to ask the question that I always ask like what would make this time I'll spend for you what would make this the Home Run looking back I have to confess that I've never hada conversation with you that wasn't well spent but would make it a home run for me is if you considered it one of the best episodes of the year or maybe even longer I want to be on thegreatest hits real all right that's what we're pushing for all right perfect to kick that off out of the gate what would be a sensible place to start is there a particular story or a lead question that youthink would help us start with bang anything come to mind there are a million places I could start of course well you know best but it seems to me that many of your listeners actually want a job without
a boss y they don't seek to build something and they need to be woken up about that and number two people who misund understand your breakthrough books think they're about tactics and they follow the steps instead of realizingthey're about strategy and then find a resilient Way Forward and strategy this philosophy is something you've been doing your entire career but never called it that well let's start there so strategy like success or God if we wantto really get out there are words that a lot of people use but often times they're in their minds referring to different things so when you use the word strategy what does that mean to you I think it'sa philosophy of becoming I don't think it's a set of tactics I don't think it's about winning in the short run I think it's about being very clear about the change we seek to make and who we seek
to change understanding the systems and the games around us and then committing to the longterm process of getting to where we're going meaning our tactics will change all the time mhm but our strategy does not and most peoplebecause we've been indoctrinated to have a job want tactics instead and I could do much better if I was pedaling tactics but I'm not I'm never going to write a story a book called This is God the tacticMonger volume one right exactly so if I'm not going to write this is God or this is tactics at least I could write this is strategy and what would be a real world example of good strategy any particularcompany or project come to mind so some famous strategies An Elegant strategy Bill Gates says we are going to have the strategy that no one ever got fired for buying Microsoft mhm he stole that strategy from IBM right
so IBM has a 50-year run where their products weren't the most Cutting Edge they weren't the best priced but they had enough salespeople and support and infrastructure that if you worked for a big company buying IBM was easyevery time Microsoft followed that strategy they did fine and when they veered away from it they had problems right a strategy when I was at yaho we had the chance to buy Google for about $10 million and wedidn't buy them I didn't get a vote yeah but Yahoo's strategy was the web is a dark and nasty place come to Yahoo and don't leave and the homepage had 183 links on it at Google their strategy wasthe web is grown up come here and go somewhere else and Marissa Mayer built the most profitable marketing engine of all time by making sure fighting for years to make it so there's only a couple links on the
home hom page because that was built into the strategy which is if you're leaving Google we're doing something right and that's where all the ads came from and that's why Yahoo couldn't buy Google because the strategies were completelythe opposite and Starbucks had a strategy that took them a very long way for a very long time but it's not about Frappuccinos it's about understanding who is this for and how can we incrementally help them get therewhat did that look like for Starbucks and what did it look like for them to stray so Howard Schultz did not start Starbucks when he got there there were two Starbucks and neither one of them sold cups ofcoffee they only sold beans and Howard had been to Italy and he realized that there was a deep human desire a to go from being pre- caffeinated to caffeinated and that gets refreshed every single day and two to
be able to do it with other people who you see yourself in People Like Us do things like this so in the Northeast there was Dunkin Donuts but the idea of Dunkin Donuts is you're not happy that you'regetting coffee the coffee isn't that delicious let's just get this over with and every time Howard built more of that feeling that you could go to any Starbucks in the world and feel feel like you were with yourpeople and that for five bucks you could feel like a rich person he could repeat it over and over and over again and the tactics would take care of themselves if not the tactics what are the core ingredientsof enacting a strategy like that there's all sorts of surprising ways that we can challenge ourselves once we start down this path but to start down the path there are four things we're looking for we're looking for systems
we're looking for time we're looking for games and finally empathy and all four of them are really unexplored and mysterious but once you see all four of them strategy is much easier to take care of itself so I'mhappy to take them one by one or give examples but those four keep interweaving over and over again and that unfolds for us what a strategy can be great let's go through the four okay we'll start with systems
This chapter explains how systems operate invisibly and shape behavior through incentives, norms, and feedback. Examples from education, weddings, and business show why understanding systems matters before making tactical choices.
and maybe if it's not too cumbersome if there's an example that's easy to give that's great too okay however you want to land it systems are invisible and they hide themselves because they don't want people to see who'soperating things they invent culture to defend themselves systems the most famous one is the solar system there's this invisible gravity there Earth doesn't go around the Sun cuz it wants to it goes around the sun because gravity makesthat its easiest path if you grow up in the United States to middle class parents you'll be under pressure from the time you're 5 years old to get good grades why do I need to get good grades soyou can get into a famous college but you're not supposed to call it a famous college you're supposed to call it a good college and that system with tuition and tenure and student debt and football teams and cheerleaders
and college tours and the sticker on the back of a car and the SATs all of it is just taken for granted as normal and so danella Meadows has done brilliant writing before she passed away way too earlyabout all the Dynamics of systems systems in our world systems that we want to build so when we see a system under stress then we can see the system right that we can see the climate when temperatures startto rise but before the temperatur started to rise when the climate was normal no one paid attention to it because the system the thing that keeps it going was sort of invisible so if you're going to start anyEnterprise a little Plumbing business a giant internet company if you're going to run for office you should be able to see and name the elements of the system where is their gravity what is seen as normal and and
there's push back if you don't do it and so I'll finish the rant by asking a simple question how much should a wedding cost oh man I especially unqualified to answer this no it's super simple working on itthe answer is exactly what your best friend spent but a little more yeah and that's why a wedding in New York City cost more than $100,000 not because you need uh monogrammed matchbooks to have a good wedding youneed them to be part of the wedding industrial complex to show your status to the people who've been invited because that's what the thing is for MH so we have to see systems and then either we work forthe system or the system works for us we can Linger on this one for a bit because next one is time so I feel like we should take our time plus it's long form so could you give an
example on a smaller skill of a you mentioned Plumbing doesn't need to be Plumbing but a solar preneur or a very very small startup two to four employees and how they might start to ask questions around systems toidentify the systems that are at work because for instance in my life I'm good at identifying what is normal like what are the unquestioned assumptions I'm good at that but that seems like I'm holding the tail of theelephant like one of the Blind Men in the parable it's like I've got a piece of it but it's not the whole elephant clearly I don't think you're giving yourself enough credit the whole tango thing I mean yeahyou have been doing this for a very long time really well or the archery thing behind me so let's say you're going to build a small business that supports medium-sized businesses with their Google workspace okay so you're a
couple nerds and you're going to be the person who helps people set up their their Google Drive and across the organization reasonably secure for an employee with a company with 100 employees right mhm because you're in there inthe factory seeing how things are made it's very tempting to imagine that everyone you're serving wants what you want and that you think your customer is the person who's buying stuff from you and what they need is atech solution none of these things are true that the system of a company with 100 people is it's probably not the CEO's job to set this thing up so it's someone else's job there's a system a hierarchy ofjobs what does that person want it's not their money so lowering your price to get new customers is not going to help you get new customers that in fact what that person wants is a story to tell their
boss a story of why did I pick these people and and even better a story of if it fails why they are not going to be in trouble and so when we show up at an organization to tellour story to that system we have to do it understanding how do they buy everything else what do they measure what would happen to us if we were bigger than the other people bidding or smaller than the otherpeople bidding all of these things go into to how the system works the same way the Admissions Office at the famous college doesn't always pick the people with the highest SAT scores because there's this complicated mechanism at playthat is historical to feed and maintain the system mhm and so in the case of this Google workspace thing let's say you decide to close on Thanksgiving Day and you've just got a message on your voicemail we close
on Thanksgiving Day leave a message we'll call you back tomorrow that seems normal unless what got you into the system was an unbreakable promise that you will never get in trouble because we will always answer the phone thatdecision that tactical decision has to be driven by what you seek to stand for but that's only going to happen if you see the system of what this company your client does and what stories do they tell themselvesmhm mhm right and Hollywood is a system and the senior prom is a system and there are all these factors that go into all of them subtle signals that people are sending to each other and if you're goingto make a living taking money from people to solve their problems it has to be to help them dance with the system that they're part of all right shall we bookmark that and come to Time games or empathy
The discussion shifts to time as a strategic advantage, emphasizing delayed payoff and long-term thinking. Google and Amazon are used to show how companies can win by setting conditions for the future rather than optimizing the present.
which would you like to tackle next okay so time is really interesting James Glick wrote a brilliant book about the history of time travel now of course there are no actual time machines but we know who invented thetime machine and it was actually HG Wells before HG Wells wrote his book nobody in the world talked about time machines the concept that you and I take for granted like if you go back in time or ifyou go forth no one ever said that ever and time we're all very familiar with it and no one can Define it and we know what now is and the now of a week ago isn't now anymore it'sback then and it feels different so if you want to build a company with a th employees in it if you want to go public if you want to be somebody with a lot of zeros in your bank
account that is not going to happen in the next 3 seconds there's something that's going to happen between now and then and each one of the steps as as we look through time is not today mhm so whenwe want to have a forest we don't get a forest we start planting trees CU 20 years from now we'll have a forest and when you're growing up in Long Island or when you're growing up training for theOlympics you know you're not going to be doing the Olympics when you're 50 so what exactly are the purpose of these steps and and what does it mean to fail does it mean that you failed right this momentin service of getting where you want to go later or does it mean you failed forever what does it mean to quit does quitting now mean you failed forever or does it just open the door to succeeding later
and so we have this opportunity to see time the way our competition doesn't so in 2001 I was at a conference and we were in this small group setting there were eight people and they said go around thecircle and say who you are and the guy to my left said my name is Stephen I'm a judge it turned out he was step Brier he was on the Supreme Court and the person next to him saidmy name's Sergey and I have this new search engine and someone said so Sergey what's your marketing strategy and he said well here's the deal we think Google's going to get better every day so we don't want peopleto use Google for the first time right away way we want them to use it for the first time later so it's better by the time they get there so we're not doing any promotion whatsoever because the Google
of now only exists to get us to the Google of tomorrow and when we're at the Google you're ready for that's when you'll come use it and at the same time Yahoo was busy trying to defend a plungingstock price in the moment as opposed to saying what are we going to be in 10 years mhm I remember the TV commercials at exactly that time for young okay so framing time differently I mean I suppose Bezosand Amazon would be an example of that as well I mean who dog trained Wall Street to expect no profitability for God knows how long a decade I mean and set out in the very first annual shareholder letterthat was subsequently I believe reread every year or represented in some fashion yeah so let's just break that into pieces right because in the moment Morgan Stanley says don't do that that's dumb it's going to hurt your stock
price today but what Jeff said was if I don't establish the conditions for Wall Street to send us the investors we want our stock price will be zero in five years MH so the only way to get tofive years from now is to do this today even though it feels expensive because compared to the alternative it's really cheap setting the conditions yeah all right I have a feeling sneaking suspicion we're going to come back to
The speaker defines games broadly as any situation with multiple players, scarcity, and variable outcomes. The conversation then turns to empathy as understanding who something is for, leading to the idea of the smallest viable audience.
conditions at some point games I like the sound of this I like games some games I suppose depends on which one I choose and if I choose it consciously but what does games mean so again back to theindoctrination so we grew up with Candyland and paresi and Monopoly those are board games and they're okay but that's not the kind of games I'm talking about any situation where there are multiple people and variable outputs with scarcitythere's a game so it is a game to decide when two lanes merge which car is going to go first M and it is a game to decide when you're working for Jack Welch and the bottom 10% ofthe people lose their job which people are going to lose their job and it is a game to exchange money for a hot dog at the baseball game because that Exchange happens in a way where two players come
together for Mutual benefit so we should not deny that games exist we should learn how games work and when we make a move in a game that doesn't seem to work we should not say we are a badperson we should say I made a move that did not work those are totally different things and so the only way you've been able to achieve all the things you've achieved between the archery and the dancing and everythingin between is you make more moves than most people and you measure them and you don't do the ones that don't work again yeah that's true but it is impossible to innovate if it has to work yeah Innovationmust always be accompanied by the phrase this might not work and so if you and your team aren't saying this might not work in service of innovation you're not innovating yeah this is my entire notebook full of training
logs and experiments and I'd say 50% is at least if not 70% things that did not work and required tweaks so that I would not repeat the same mistake the next time doesn't always work but over time ittends to round towards Improvement at the very least we've only been going at this for a few minutes but already I can hear it people saying wait wait wait wait I tuned in to have someone vindicate the tacticsI am already using that that is what I am listening for to hear that I am on the right T when are you guys going to get to the tactics part and the Very fact that we don't hearthis kind of description of the world we're in is like the fish that doesn't realize it's in water and what I'm trying to help people see in a world that is changing faster than it has ever changed in
history is when you see these threads and these systems under stress that is when you know there's an opportunity for you and if it feels uncomfortable imagine how it feels to people who don't get the joke when thisdiscomfort shows up that's the opportunity for sure and one of the many reasons I've been looking forward to the conversation is I spent a lot of time thinking about many of these constituent Parts but I haven't necessarily explicitlywoven them together into something that combines into strategy but in terms of time Horizon and for me a lot of it is trying to find or create a category of one for quote unquote competitive advantage and part ofthat is choosing a game I can win which entails also understanding the rules of the game that you have chosen or inherited or somehow deliberately or accidentally ended up playing right we really trying to parse the rules of
the game the time I do think about that a lot right it's one of the simplest ways to have a competitive Advantage just to have a longer time Horizon but it requires having a lot of other things fallin line and then certainly the systems and in part depending on what game you're playing as you said what are the the gravitational polls what are the incentives of different stakeholders who has what degree of respective influence it'sfun to hear these all combined empathy is one I mean I would like to think of myself as an empathetic person but this isn't maybe one that I would initially have thrown into the ring as an integral pieceof strategy so what is what does this mean you just gave it away I'd like to think of myself as an empathetic person implies that there's a moral component to what we're talking about and at some level of
course there is but that's not what I'm talking about what I'm talking about is this everything we build and everything we make only works in a voluntary exchange if someone else wants it more than they want the moneyor time they have to trade for it meaning someone's not going to buy the thing you're selling at a craft fair because you worked really hard to make it they're going to buy it because they want it andall empathy is is being very clear about who it's for and why they want it and we get so busy and so exhausted making something we forget we hustle people and hassle people to buy from us because it'simportant to us sounds like some of my blog posts yes the notebook you didn't need to publish The Notebook if your goal was for you to read it because you already read it right you are publishing it so
other people will read it so your description of the book is not please buy this cuz I worked really hard to write it it's I have a thing here that when I describe it if I create the conditionsfor information exchange to happen you will bang down the door to get it you will be angry if you can't get a copy now that implies that it cannot be for everyone no matter what we make because youcannot be empathic to everyone unless you're selling I don't know oxygen on a planet that doesn't have any there's nothing that everyone wants the same way so where all of this must begin and end is with the minimumthe smallest viable audience who are the people just them that when they hear about this they're going to say that's exactly what I was looking for that's all you need you pick that group you Delight them and you
forgive everybody else and here's proof that you're not doing it if someone comes to you and you are not regularly sending folks to your competitors or people who are thought of as your competitors you are not serious aboutthis about picking the audience who it's for and forgiving everybody else when someone shows up at the Ferrari dealership and says I got six kids how am I going to get them to school you don't try to persuadehim to get an in Enzo you send him down the street to the Volvo dealership that was one of your many questions I suppose 40 or so questions in the book that I wanted to ask about am Iposition as a service can I happily send others to people who might be seen as competitors and I was like huh interesting I wanted to clarify that which you just did and it makes sense if you can't do
that then you you very likely do not have your 1,000 true fans or minimal viable audience to find right yeah I mean positioning is why are the people who don't choose to buy from you right to make thatchoice and if you have this attitude that everyone should buy from you you can't answer that question so the people at Nestle's don't get upset if you buy an Asen noi chocolate bar for $14 because Sean and hisdaughter aren't selling a chocolate bar to people who might buy a Nestle's bar they're completely different groups of people mhm and the same thing is true for people who play Dungeons and Dragons versus people who want to gowatch Ultimate Fighting Championship in that given moment there are two different groups of people I'm glad you said in that given moment because I happen to be the perfect overlap there are some people who do both but they
don't do both at the same time no no no very hard to do at the same time
This section explores how to start small, use limited resources wisely, and avoid the myth of instant scale. Examples like Kickstarter, YouTube, and Robert Rodriguez show how side-door strategies can build real momentum.
all right so we have then this might be a good segue many maxims or ideas that we could discuss from the book and I circled a few for myself mostly for clarification and I'll let you pick from oneof these three and feel free to revise the wording but I'm very curious I'll read the three and then you can pick whichever one you want to start with so the first is systems don't start out selfish butresilient ones often end up that way the next one is you're not sitting in traffic you are the traffic and then the third is don't try to burn big logs if you only have a little bit of kindlingperfect let's to all three we'll start with the last one all right if you've ever gone camping you know what I mean by the you know if you have enough kindling I do I was freezing my ass off
in a rural archery range yesterday and realized they had a nice wood burning stove but all the logs are as big around as my torso and I thought well that's going to be a really tough fire to startexactly unless you had an enormous amount of kindling and then it would go up in no time yeah too often because of the media entrepreneurs think if they don't start something that sounds giant they're failures too often wegive entrepreneurs credit for raising a lot of money from Venture Capital that's probably not the right path for you the money you're raising from investors is kindling and the logs you're starting are the markets you're trying to getto so if you want to build a dialysis chain in 40 cities where people can go get reliable kidney treatment you can't start that with $100,000 loan you just can't but a $100,000 loan is more than enough to
get yourself doing very very well with a hot dog cart somewhere right so we first got to make a smart decision based on time based on the systems we're confronting do we have enough kindling do I have enoughreputation even take this on MH the one about systems is this systems aren't people they are collections of people and they act in ways that maybe the people who started the system and maybe the people who work inthe system wouldn't choose but that's the system they've got so if you think about the Healthcare System system in the United States it's not a healthare system it's a treatment system because everyone in the system gets rewarded forgiving treatments not for making you healthy MH and so it's quite likely that once you start working with the medical industrial complex you'll get more and more tests and more and more probing and more and more bills because
that's what the system does and every time someone moves out of where the system ended up the system exerts of feedback loop to push them back into the spot where they belong and so if we look at howwe ended up with college educations that cost almost $300,000 it's because the combination of accreditation and ranking and tenure and parent status and placement offices all support it going in Only One Direction and if you show up saylook at me I'm really smart I went overseas and in two years I learned X Y and Z the system's going to push back and say yeah but we require this kind of degree from this kind of accreditedthing the NCAA is a system that started with people playing football in the backyard and now they're taking private jets to stadiums with 100,000 people in them because the system kept turning in One Direction and you might not
like the output but you probably can't change the system by yourself what you might be able to do is back to your second thing you're not sitting in traffic you are traffic when you participate in a system you'reeither going to make that system more successful and get a prize or you could try to fight that system but you're going to need a lot of kindling to do so because being in the system actually changes thesystem one way or the other so so the challenge that we have is you know Google didn't show up and say we're going to have meetings with all the aded agencies in the world and changed the way advertisingWorks instead they walked away completely from that world multi-billion Dollar World of AD spend and instead built a tiny little engine for direct marketers where someone would buy the word Chanel and they'd buy it for a nickel and
then what would happen is a brand manager from Chanel would Google themselves don't do it too much you can go blind but they would Google themselves and they would see someone had bought their name for a nickel sothey'd pay 10 cents to take it back and the auction was on so Google changed the system but they didn't change it with a frontal assault they changed it by moving away from the system finding people who weren'tpart of the system and then the system chased them mhm and I wanted to mention and also just a footnote to the kindling comment which is some people listening might say oh man well takes money to make moneyand I would just say there are many ways to get that kindling right you can do joint ventures you could do licensing you could do non-dilutive financing which is a fancy way of saying for instance two startups that
I've been chatting with have raised money from the government they're really good at doing that from DARPA and so on and they get a nice big fat check it's delivered within 6 weeks and it does not affect actuallyenhances with lots of Leverage their ability to raise money in the future so there are very off men approaches to Gathering your Kling yeah and there's also the choice you make of saying you know if you want tobe in the movies you could invest years of your life and pay an enormous number of dues and wait for Hollywood to pick you or you could sharpen your writing skills and make a 2-minute YouTube video and thatYouTube video could then find you an audience and Alana Glazer went on to be in a popular Comedy Central thing and then a movie star but she didn't go in the front door because she didn't have enough kindling
to go in the front door instead she found her audience and then multiplied it yeah there's an amazing story people can check it out in a book called a rebel without a crew by by Robert Rodriguez and whenhe made I think it was Mariachi way back in the day he basically came up with his list of assets and he's like all right we got a turtle turtle's going to be in the movie all right myfriend has a broken down school bus school bus is going in the script and like his cousin has a pit bull great we'll figure out how to fit it in and retrofitted the entire script around this and peoplethought wow this must be like legit legitimate well budgeted film it's like no I just made a list of everything I had and then tried to insert them somehow and uh he is very good at operating with I
would say lateral approaches to creative output yeah are there any other examples of taking the side door so to speak that stick out to you could be for entering a wellestablished sector it could be for anything in factthat's almost always what happens and the mistake people make is if you find yourself saying I just need to get the word out I've done all the hard part now I just need to get the word out youhaven't done the hard part what you've done is waited for a miracle and the people who have gone on to build for example useful businesses on top of a Kickstarter MH stepwise said all right I don't have enoughmoney to build the factory get into Best Buy do National advertising but I do have enough money to get 1,000 people to pay me $200 for a coffee maker and then I can do the next one and then
I can do the next one so this stepwise process back to time says the shortcuts are illusory that the most direct Way Forward feels long in the moment that I'm going to serve a group of people that thatso need what I'm doing that they pay for it and that are so delighted by it that they tell their friends and then I'm going to repeat it and I'm going to repeat it and if you look atyou know articles on Tech Crunch and places like that at companies that raised 50 or100 million doar who are going to change the whole world overnight they're all gone right because you just can't shortcut that on demand whatyou can do is find that group of people and bring empathy to them and make a change up also with raising that amount of money some of them a handful out of hundreds will figure out a way to
make it work but in most cases they're like all right we have an idea on the back of a napkin I think this space shuttle will work let's raise a bunch of money and then they put together youknow Soapbox Derby space shuttle and then just incinerate themselves break into a million different pieces that's the usual outcome but you know call C no breaks sometimes it works but not all the time and I think that also
The conversation explains how repeated use, sharing, and compounding value create feedback loops and network effects. Examples like email, Krispy Kreme, and media communities show why some products spread naturally.
I suppose I have a reputation for shortcuts but it's not really I don't think of myself that way I like to find elegant workarounds if they exist but I'm doing a ton of experimentation and taking all the notesthat I had in that notebook for anything so that I can hopefully make sure I'm not fooling myself and that I can replicate and then if I can do that I'm like all right let me try that withtwo or three other people and they like okay well let's expand the scope a little bit yeah and so that's where feedback loops and network effects come in so people don't really understand feedback loops feedback loops are notfeedback right the feedback of I'm going to give you criticism that's not what we're talking about feedback loops there are two kinds positive and negative so a negative feedback loop isn't actually negative it's a thermostat and what that
means is if it gets really warm in the hotel room the air conditioning kicks on if it gets really cold the heat kicks on it's negative and that it keeps it in a central place and a positive feedbackloop is like the microphone at a bad wedding that gets that screeching sound that goes around and around and around because it keeps getting Amplified so what we seek to do is build a project that the next timewe do it it's going to work even better we want to find an insatiable desire and start the path of filling it so the insatiable desire could be something like status but it could be something like I needcaffeine every single morning right it's not doesn't fade over time and as you become the reliable purveyor of caffeine then risk averse people are just going to keep coming back again and again so once you had a small
head start with this podcast you could keep that Head Start by creating ever better episodes of the podcast and no one could ever catch up right my blog in April is gonna have Post Number 10,000 wow and noone's ever gonna catch up to me yeah but each time there's another post it becomes more of what people signed up for and this doesn't work quite as well when you're talking about shoes because once someone's closet isfilled the only way for them to buy new shoes is to get rid of the old ones mhm so a Christian lubaton can't scale to Infinity because sooner or later you run out of people who have the moneyor you run out of people who have the closet space but what we're looking for is to build these networks with feedback where it works better when I tell my friends it works better when I have more of
it it works better when I do it again and these insatable desires are everywhere but we ignore them and instead try to steal market share from somebody else so I think this ties into one of the questions alsothat I was going to ask you about which is how can I create the conditions for a network effed developer on my project I suppose is ensuring that you have an answer to hopefully an affirmative answer to canyou say or would your clients say or customers it works better when I tell my friends right that would seem to be one there are some very pure examples of this but not many so a pure example isthe the fax machine or email mhm if it's 40 years ago and you have friends who don't have email you need to get them to get email cuz you can't send email to people if they don't have an
email address right yeah that Crispy Cream priced the donuts so that it was cheaper to buy a dozen than to buy four mhm and crispy creams were scarce so if you showed up at work with a dozen CrispyCream you were a hero and so that spread the idea the more times people shared Crispy Cream the happier the sharer was and the word spread so a lot of things that people build don't have a network effectbecause there's no incentive to tell the others on the other hand something like the big Labowski I can't talk to you about it unless you've seen it so I got to get you to go see the big Labowskiso we can talk about bringing the room together right and so it's built into the idea of a certain kind of movie is we're going to talk about it where is the network effect why does it work better
m not better for you but better for the user if their friends have it too so I'm wondering where you would draw the demarcating lines between below average non-existent moderate excellent Network effects in the sense that you givea few examples and I'm wondering for instance where something like magic The Gather in would fall I mean it seems sort of intrinsic to the nature of games themselves that if you want to play a game and it'snot a solo Venture you need other people to play Magic was very beautifully designed by blanking on his first name something Garfield I believe but the collectible aspect to it also and the competitive aspect all of these thingscombined to help make it a real incredible phenomenon but it's it's ultimately a game you need other people to play with you but how would you think about that or any other examples that come to mind if you're
really trying to dial this to 11 to use a spinal T reference but it works better when I tell my friends right there are some obvious examples that spring to mind Facebook something like that but Crispy Cream anothergood example it's better when you tell your friends you end up being a hero great so that is a Meandering caffeine infused speaking of caffeine lead into what I think is a question but I'll let you take that
This chapter examines how people are motivated by status and affiliation, and how tension can be created intentionally to drive action. The discussion includes books, magazines, Alcoholics Anonymous, and Netflix's binge-watching strategy.
wherever you want so for people at home I'm cheating I made these decks of cards that people can get and they have 200 questions on them and what you do is you play them out so that you canchallenge your peers to work with you to start working your way through these questions and the book has more than a, questions in it because the questions are how we open the door so in the case of thenetwork effect what do people want well at some level there is a desire for mechanical efficiency that you want everyone to drive on the right side of the road if you live in North America because if some peopledrive on the other side of the road someone's going to die and so there's very much of a network effect about which side of the road are we going to drive on there's no disagreement whatsoever MH but those
spots are mostly taken and so now we have to say what do people want and I think people only want two things three freedom from the feeling of fear let's leave that aside the other two are status andaffiliation affiliation is who are you hanging with who are your friends who's at the table with you are you alone affiliation is I got invited to a fancy wedding in the Hamptons couple months ago we pull up youhad a park your car and then a golf cart would take you in and there's three of us waiting it's Helen my wife and I and I'm wearing a suit and there's a guy who's also waiting he's wearinga tuxedo and I'm like uhoh it's G to be a long night and I'm feeling really bad for myself didn't I read the invitation and then two more cars pull up and three people in suits get out so
now you can hear this this guy going uh oh because he was the only person in a tuxedo why should it matter right it's still closed well it does matter because where do you fit in and status iswho's up and who's down who's winning right so something like magic the Gathering said to a kid who might see themselves as lonely this is a really good way for you to hang out with other people without havingthe kind of conversations that make you uncomfortable you can talk about dragons and Orcs and stuff like that but by making them collectible they also built in status because if you have a thicker deck or more valuable deckyou're moving up with people that you're competing with and those two things kept dancing back and forth and back and forth and back and forth so what we're probably doing when we build a modern entity that's going to
use the network effect is we are offering people either affiliation everybody else is doing this you are being left behind or status which is you're in the right room and other people aren't and if you leave this roomyour status is going to go down and so if you do the math of the Ted conference that's all it is status and affiliation if you do the math of why people have the latest version of earbuds orwhatever status and affiliation over and over again are we giving people creating the conditions for them to get the status they seek or the affiliation they crave and that brings up one of the scariest nonsecretors in the bookwhich is the creation of tension if you want to make change happen you have to create tension on purpose not stress stress is bad stress is your trapped stress is life is bad stresses you want to leave but
you can't tension is what happens if I pull a rubber band back and then let go I had to pull it backwards to get the rubber band to go across the room so if I say Taylor Swift isplaying in Amsterdam and there's only 400 seats left I created tension because everyone who wants to go knows that there are more than 400 other people who want to go they better hurry and get their mom to givethem the money or else they're going to be left out by creating tension the concert promoter fills the venue if there is no tension no one's going to come because they think I'll just come I'll just stroll inif I feel like it so scarcity creates tension the lack of affiliation creates tension the desire for status creates tension when you're out trying to raise money and someone says to you who else is invested why would they
ask that question they're asking about affiliation they're asking about status if you say I have term sheets from three people and I only have room for one more person you create a tension and and so we're constantly doingit but we rarely do it on purpose could you say a bit more about affiliation status sidebar Richard Garfield is the mathematician who designed Magic the Gathering there's a great episode on a podcast called think like a gamedesigner that has Richard Garfield uh on it which I suggest to people affiliation and Status could you perhaps Give an example from book writing or or from podcasting perfect yeah let's talk about books so why do authors blureach other's books right you don't see Tim Cook blurbing an Android phone so why are authors so eager to put their names on each other why do they not only permit but celebrate the idea that they're sold next
to all the other books books don't sell at the supermarket they sell next to the competitors M because you get status if you're published used to be more by a famous publisher you get status if you're reviewed ina certain kind of review you get status if you're face out you get affiliation if you're seen in the same category as Stephen King or Elmore Leonard it's high school over and over and over again right okay sothat applies to the authors what about writing books if people are trying to pull some of these levers for pressing the the buttons of affiliation and status for readers what might that look like there are a couple elementshere in the idea of fiction if someone says have you read Middle March or have you read catcher and the Ry and you say well of course and you say something smart from it your affiliation with that person
was established if you said what book Catcher in The Who your status goes down you don't have a bridge to talk about it so you know on the upper west side in those fancy apartments at the Dakota that'sall people are doing is signaling to each other I belong here cuz I just read what you read and I have an opinion about it and the same thing is true a thousand miles away but people are talkingabout NASCAR it's exactly the same thing we don't need the cars to go around in a circle we need the conversations that we have about the cars going around in a circle and how can you design a productor a company or a book to do that more effectively rather than less effectively exactly because there's certain things that culturally when they reach a critical mass Game of Thrones as an example there was a point where that
was such appointment viewing and such a dominant conversation that people just felt completely out of the loop and like Schmucks if they weren't able to have at least that common Touchstone for conversation I'm not saying everyone but alot of people it was that dominant Harry Potter are another example but those are already stratospheric successes so in the early stages what types of questions should people ask or what types of thought experiments should people do whenwhen trying to run their idea through or their product or whatever might be through the filter of affiliation status and then the other one that we taed but we don't have to talk about that just yet it's backto the conditions create the conditions for the people in the smallest viable audience to have to talk about it so Tina Brown took over the New Yorker it was failing the New Yorker magazine and what she did it
cost a fortune is it used to come out on Mondays by Messenger on Sundays 4,000 people got the New Yorker delivered to their apartment now if you're one of the 4,000 your status goes up but it only goesup if people know that you are one of the people on Tina's list so the first thing you're going to do when you get to work on Monday talk about the New Yorker yes the New Yorker because youtalking about it is the only way for your status to go up and now people who want to be in your circle feel left out so they have to quickly go read it and it becomes a topic ofconversation but only for 4,000 people it was enough because of that Center Alcoholics Anonymous which isn't Anonymous at all the first rule of Alcoholics Anonymous is you talk about Alcoholics Anonymous only started with 12 people in a room
no one knows where the headquarters are no one knows who runs it each person got one of the steps good point and so once you have that tiny circle of people and you do everything you can to createthe conditions to change the lives of those 12 people their desire for affiliation to pay back to those they've harmed as a form of establishing a new status in the world begins the kernel of its spreading but backto the access of time it took decades before Alcoholics Anonymous was Alcoholics Anonymous right you can't make something like that work overnight if you're going to talk about a TV show what's the biggest strategic mistake Netflix made andit's hard to criticize Netflix strategy because of what they built but it's this they forgot to stop the binge watching when they started with the binge watching the strategy was this and this is one of the questions in
the book what are we willing to do that our competitors aren't and they knew that the TV networks and the cable networks would never be willing to show all the episodes of a series at once because they hadto defend their whole model and the way they paid for the shows so Netflix said we're just going to let you see the whole series in one day the more you watch Netflix the less you're watching somebody elsewe're going to get you hooked on this because you're not going to get involved in other shows because you're going to be impatient and it worked they really struck a Blow by doing that but what it cost themis the water cooler because you're afraid to talk about episode four of secession cuz your friends are not caught up yet you're going to spoil it for them so we don't talk about it as much as if it
was every week mhm and so shifting gears I talked to Ted about this and he didn't have a good answer it's like about four years ago they should have switched back to once a week and so they usethe binge watching to basically build a critical mass of market share and then dial it back to more appointment viewing exactly something like that because then the only people who aren't paying for Netflix are going to keep feelingworse and worse cuz everyone's going to be constantly talking about the new show on Tuesday and they're not in so that's going to be the incentive for them to become one of the last people who isn't paying for
The speaker addresses how early successes can create later momentum when a project becomes a community. The idea of the book as a 'pit' around which a larger audience forms is developed through examples from volunteer firemen and online communities.
Netflix let me pick up a few other questions and then we can of course move in some methodical way but I kind of like the scattershot Improv Jazz so there twoo and I'm selfishly asking because I want tohear your thoughts on this since I am experimenting as you know with the currently Cod named no book and and we'll be releasing serially initially so I want to set the conditions such that good things can come asdomino effect later so one of the questions I'll give you I'll give you two you can pick or we can do both so one is how will early successes of my project make later successes more likely and thenhow big is my circle of us and circle of now what can I do to expand them great the second one we're going to treat a little differently but the first one I think it's really important the challenge
of non-fiction writing in this world today is tldr and for people who never read the dictionary because they were too busy it stands for too long didn't read which means I don't have time to watch all of Dunejust tell me in three sentences what it's about people don't usually say that about a movie like Dune but they say it a lot about the books that people like you and I write and James did a greatjob with atomic habits but I will be delighted to wager that many people didn't read the whole thing MH because they bought it so they could understand what it was about and then once they understood what was abouttheir problem went away same thing's true with the 4-Hour Work Week same thing's true with permission marketing right that if you read the first three chapters of permission marketing you know what it's about and now you say I
I don't need to go into more detail I've solved my problem here so the challenge you face with the notbook is if someone says Tim's got a new book you just created tension because they don't know what it'sabout and then if someone says it's about this and they solve the tension problem mhm their problem goes away and they're going to move on early successes don't lead to later successes mhm this is not what happens withthe Bible because the Bible is part of a cultural thing that people keep coming back to over and over again and status is accorded to people who spend more time reading it m and so the key to makinga non-fiction book work is to put it at the center of a community yeah and so a weird seemingly unrelated story back when I was starting out and I was really struggling there were many days when no money
was coming in whatsoever and and someone said to me why don't you do something useful like I don't know invent the seedless cherry and I took this personally so I the next morning I called the US Department ofAgriculture and I asked this was before the internet and I asked for the Cherry department and they had a cherry department and this guy answers the phone he says cherries and I say I'm on a quest I wantto figure out how to make a seedless cherry and he said well a seedless Cherry is actually quite easy but you wouldn't want to do it because it would still have a pit and the thing is the seedsinside the pit and if you don't have a pit you can't have a cherry because the way droops that's the kind of fruit like peaches grow is they have to have a pit and it all grows around the
pit mhm so no pit no Cherry that's the way it goes and so the book is the pit MH and in the case of permission marketing I wrote a book but it turned into a hundred billion dollar yearindustry right that MailChimp and HubSpot and all the others they were built around the idea in that book so your status at work would go up if you knew more of the detail your connection would go up ifyou could stay current with it but if that hadn't happened then my career wouldn't have happened either because all I did was show up with a pit and then the fruit showed up around it so what you havedone is somewhat with intent and somewhat without is there is now a Vibrant Community of more than a million people who talk about what you do who listen to your interactions and you are the pit but they're the
fruit sure and they need you to keep narrating these conversations if you're going to make it a book work you're going to have to figure out how to make it drip in a way that keeps making each installmentworth more because you've read the previous ones yeah that's part of what I'm excited about and a little nervous about but I really think it'll work is to Workshop the book effectively right because they're already 500 plus pagesand a lot of them are polished but by creating a community of beta testers right early readers on something like Mighty networks or Circle or one of these platforms and I think it's a challenge worth attempting I've alsojust done it the other way so many not as many times as you have but' done it five times but more successfully than me so you well yeah let's think about volunteer firemen for a minute I'm just going
to use that interjection from now on I love it there thankfully there are except for tragedies like in California there are far fewer house fires than ever before because of building codes and other things and yet volunteer firefighterscontinue to show up they show up at the fire station they connect with each other around firefighting but firefighting isn't the point the point is the volunteer part the connection part the affiliation part and so you know whatGina has done with Mighty networks is very cool but at its heart it's what do I get from the other members of the network not what do I get from the pit yep 100% And so that's where your
The conversation defines the circle of now and the circle of us as strategic lenses for choosing partners, customers, and goals. It also briefly revisits fear as a separate motivator that can override status and affiliation.
opportunity is yeah it doesn't work for me otherwise also I don't want to be you know time to make the donuts for people are old enough to get that reference to the Duncan Donuts commercials from the 80s let'scome back we don't need to spend time in this but I'm curious how big is my circle of us and circle of now what can I do to expand them this was the most heartfelt part of the bookfor me and it's the one that people ask me about the least so I'm thrilled that you brought it up M the circle of now goes back to time a toddler has a circle of now that lasts 7seconds if they don't get what they want within 7 Seconds they have tantrum somebody at the peak of their maturity might have a circle of now that lasts a decade I am going to go through medical school and
pay out money and have no fun for six or eight years because after that I will be able to achieve my dreams that's a very big circle of now so when you pick your partners when you pick yourinvestors when you pick your customers it would really help if you would pick people whose circle of now is sort of similar to your circle of now MH and one of the giant crises that we're all going tolive with is what's happening to the climate because a whole bunch of people have a circle of now that's fairly short that says yeah but my house is cold so I'm going to you know chop down the furnitureto put it in the fireplace to warm things up and other people have a circle of now that's much longer it says I'm here for the Seventh Generation what do I sacrifice today to help them later that's circle
of now the circle of us is a toddler cares about themselves and maybe their parents it's a very small circle whereas someone like my friend Jim who runs the Fuller Center Nell who's been providing housing and sustenance forstrangers for decades his circle of us is tens of thousands of people it's a much bigger Circle so when we think about our strategy we got to keep coming back to well how big is my circle because evena Rand cared about more than one person that the circle of us generally is more than just me and the circle of now is generally more than just the next 30 seconds the exception is if you're drowning ifyou're drowning the circle is you and the circle is now that's all there is but we're not drowning so how do we grow into big enough circles and how do we create the conditions for the people around us
to have similar circles because if we're measuring the right things they're going to measure the right things and we're going to get what we seek to get in addition to affiliation and Status there was one other need Iwant to say was something like extinguishing fear something like that it's the freedom from the feeling of fear there we go all right where does that fit in it can shortcircuit everything that if you are in a movieand the fire breaks out you're not really going to focus on affiliation or status you're just going to focus on Survival mhm most of us are lucky enough that we're not in burning buildings but it's very easy tobe persuaded by marketers or manipulators and it's very easy to get into a doom Loop where you imagine that you are in a burning building yeah for sure and so all these things happen so when we think about
how do we get somebody in a hospital to allow us to you know do an operation on them or make an incision well that's because they believe that the fear will go away if they can get through thisMH that's not about affiliation it's not about status so I put it to the side because most of us should not be in the business of dramatically inflicting fear on other people yeah ideally and so that's why I
This section distinguishes freelancers from entrepreneurs and explains how choosing customers and competitors shapes the future. It then turns to community design, pricing, and leadership as ways to create a self-sustaining group.
keep coming back to the other two because in Civilization it's mostly status and affiliation got it what are other portions of the book could be questions themes that you think are important for entrepreneurs or wouldbe entrepreneurs to understandthat might get glossed over because I can think of things from all of my books I'm like man there's this one piece maybe I didn't emphasize it enough people tend to skip over it and that is a veryimportant piece of the whole puzzle I'm wondering if if there's anything that comes to mind for this is strategy we'll talk to the Freelancers in the room first I'm a freelancer I have no employees you're looking at mywhole team I've been an entrepreneur it's a different job entrepreneurs built something bigger than themselves they get paid when they sleep they use outside resources to build something they could sell whereas Freelancers do a craft and the only
way to move up as a freelancer is to get better clients you can't work more hours and hiring Junior versions of you is not sustainable because if someone a junior version of you is better than you they're notgoing to take the gig and if they're worse than you your clients are going to be unhappy so getting better clients is the defining step the goal if you're going to be a successful freelancer and you don't getbetter clients by doing a good job for bad clients you get better clients by coming the kind of freelancer good clients want to hire M which leads to the two big insights that people skip over which is whenyou pick your customers you pick your future and when you pick your competitors you pick your future so it's take them one at a time when you pick your customers if you pick people who are cheap frazzled in
a hurry don't read the instructions and are disloyal well now you know how you going to spend your days can't believe you could throw me under the bus like that no I'm kidding just kidding yeah it's going tobe a rough ride if that's what you're signing up for but that's what most people do because those are the easiest customers to pick and if instead you pick customers it might be harder to acquire but demand betterquality and insist on paying for it who are eager to talk about what you do and blah blah blah blah blah your future is going to change so when you pick your customers you pick your future and thesecond one which goes with it when you pick your competitors if your competitors are ruthless Cutthroat immoral and constantly racing to the bottom you're going to be pressured to do the same and so the industry you walk into
and I've been in many Industries and the reason I've stuck with the book business is that my competitors are my friends I have no secrets from them and I Delight in spending time with them that's not true forexample in the toy business the people in the toy business who compete with each other you know there's secrets and there's lawsuits and everything else so we should make these decisions on purpose and the same thing is truewith who you're going to get your funding from because if you show up in Silicon Valley you've decided what kind of company you're building and if you raise money from dentist in Iowa you could build a different kindof company yeah and if you bootstrap yet another kind of company Al together so let me just make this into a sort of a private Consulting session got to strike while the iron is hot here with communities because
you have worked with and helped cultivate many different communities for different purposes right you've got alt MBA you had a sort of mass collaboration for the carbon Almanac and you have experience with this whereas I really do notat least in a community management perspective and one thing that's been rattling around in my head and I haven't landed anywhere where I feel a high degree of conviction is in building a community for say this serial releaseof the notebook the principal goal of which is to make the book as good as possible but also to get people excited into to see if things work MH that is part of making the book as good aspossible we have already tested pretty much everything but it has to work for a certain critical mass doesn't need to be everybody but a certain critical mass of people and I have wondered whether the community should be limited
and free or limited and paid even if it's a nominal fee I have a lot of fear associated with the paid because you know sometimes people pay $5 a month they expect me to be their 247 life coachon demand and that is not something I want to sign up for and we could and will boot people who end up just being too high maintenance but how might you think about this and so I've leaned towardsfree because I mean that the money wouldn't really matter but for instance when I've done in real life gatherings I don't care about the money that comes in through ticket sales I do care about having an accurate headcountso we can plan for the event and if people have to even just put in their credit card for a $1 payment they are more likely to show up so these are some of the thoughts rattling around how
would you chew on that stuff the money always matters because money is nothing but a story it is not a pile of green things or Bitcoin it is a story so years ago I did an event in NewYork for nonprofit leaders I wanted to make sure they showed up but I didn't want their money and so I said to them you got to bring a check for $100 made out to a char I pick andat the end of the event if you don't think it's worth it you can take the check back but I knew that everyone would have skin in the game MH and I was heartbroken that some people took themoney back because their mindset of donation was I'm already working in a nonprofit I don't give money to anybody else which was heartbreaking but it helped me see how deep the money is a story thing so you mentioned
three communities that I've been lucky enough to be part of and in each case the money was different so at the carbon Almanac it was my full-time job for a year and a half I was a volunteer andso were the other 1900 people no one got paid no one paid and I don't think Community Management is as important as Community leadership Community leadership is about creating there it is again creating the conditions for the communityto lead itself and so my job was what are things like around here how do we talk to each other who gets to stay and who has to leave but once I could do that then the amount ofactual management I had to do was fairly minimal because the right people were in the room the alt MBA we wanted to establish that it was a bargain compared to $200,000 at Stanford and that it wasn't some simple
online course you had to show up every single day and so we charged three to $5,000 and thousands of people went through it and the fact that people PID a lot was very important because they got more thanthat and the minute that wasn't going to be true I should stop doing it because the whole premise was your time is worth even more than the tuition we're never going to cut a corner because we have unlimitedmoney to spend on this facility and the third one is is called Purple space which runs now costs $20 a week and the reason people pay to be in it that I need them to pay to be init is so that they'll show up because like many asynchronous online communities it's easy to join but then it fades on your priority list so what I would push back on is you said that the purpose of the
community is to make sure the book works and to make sure the book is good I don't think that's the purpose of the community now it's your community so you get to decide yeah I know push back Ithink the purpose of the community is to build a place where using some of these core ideas the people who engage with each other supercharge their journey to where they want to go if that's what it's for thena side effect is the book's going to be good well that will be my indicator for the book working right if people have successes help one another and I see that as a natural outgrowth of their engaging withthe material right if those are the tendrils that grow out of the soil then it will have worked nothing less than that but that's why you charged for it you charged for it not because please come here and
help Tim make his book better but I work so hard on it Seth you're charging for it cuz you're saying if you're going over there yeah over there that's where I'm taking people if you're going over there Ithink this is worth a lot of your time and $100 out of your wallet and at any time you don't think it's worth $100 you just hit this button and you'll get the $100 back so that means Ihave to work overtime to make sure that people would rather stay in it than click that button and get their money back okay cool all right lots to chew on you can edit any of this out if you
The speaker contrasts management, which optimizes processes, with leadership, which creates conditions for people to solve problems. Hospitality and a memorable hot dog story illustrate how trust and care can shape an organization.
want I don't mind no we'll keep it in and could you say more about leadership so management and Leadership Ray Croc and Henry Ford were pioneers of management that Frederick Taylor had a a stopwatch and we got thephrase human resources from the idea of treating people like a machine and if you've ever heard the phrase being jerked around or calling someone a jerk it comes from the Henry Ford Model te plant because you would watchthe workers and they would be like dancing around like marionettes because there was someone like a stopwatch on every single motion this is management mhm and management is super effective at a fast food restaurant or any process thatyou need people to act like a machine if you don't do it no one's going to show up for their shift and your productivity may go down leadership says I don't know the right way but I might be
able to build a community of people in a place where they find the right way and so I can't tell people what what to do at every step cuz I don't know but if I get the right peoplein the room so here's an example I love from the leadership category and I'm talking about Google a lot today I'm not sure why so early on Google was going to go out of business and it wasn't fromlack of Revenue it was because the internet was too big and the computers they were using to index the web weren't fast enough to keep up and so doing a search on Google went from taking a tenth ofa second to seconds and people just weren't sticking around and two Engineers worked overtime and figured out how to hack Dell hard drive controllers so that they put the data that was most needed near the outside of the
spinning disc so that the hard drive could get there fast that's awesome didn't know that this is like the greatest hack of all time and I promise you that Sergey and Larry did not think to tell them todo this yeah leadership says let's get the right engineers in the room give them the right resources and the right problems to go solve things with an incentive of status and affiliation for doing so and now with AIdoing most of the jobs where we can write down specifically what we need done management is going to get less and less important and Leadership becomes more and more important which is why strategy matters so much because youwant to tell people the strategy and let them find tactics mhm and so the fancy hotel that says to its Frontline workers the people who are changing the sheets and stuff here's 250 bucks per customer you can spend
it any way you want if a customer is unhappy give them free dinner give them whatever you want 250 bucks we're never going to question you doing it that lets your front line have tactical control but you're notchanging the strategy mhm which is this is a luxury hotel yeah there's a book I'll recommend to folks if they're interested it's very fast read it's by Will guidara un reasonable hospitality and it's a great example of howfar you can push that will lives this he's a great guy and so is his wife Christina and he understands that you don't manipulate people with hospitality which is easy to try to do but ultimately gets you introuble instead you serve them with hospitality and you can see it break down at places like Madison Square Garden you know when he has a temper tantrum and starts scanning the faces of people walking in and kicks lawyers
and their kids out of the venue wait who are you talking about that's not Hospitality who's doing that the guy who owned Madison Square Garden I can't remember his name there were people who were challenging him in theoutside world and he just started acting like you know the emperor the point is hospitality is a point of view and it's a point of view that sits right next to leadership so it doesn't mean you're giving awayfree candy all day long what it means is we agree on where we are going and then I trust you to help us get there yeah as far as storytelling also or setting conditions such that your customers willtell stories it's a fun book to listen to and it was recommended to be by one of the top game designers in the world who has nothing to do at face value with hospitality but he was like I'm
halfway through this you have to listen to it and there's still stories that have stuck in my mind from that book and for those who don't know just very briefly tells the story primarily of 11 Madison Park goingfrom Scrappy startup to one of the top if not the top rank restaurant in the world and is a very fun listen to read can we tell the hot dog story go for it let's be clear anyone whogoes to a clothing store is already wearing clothes speak for yourself I didn't say they were nice clothes yeah anyone who goes to 11 Madison Park for dinner in the old days to spend $400 already has food intheir house you're feeding people who already had lunch you're not selling the food will was the front of house person matro and stuff and he trained the staff relentlessly one of the staff is serving a couple that's celebrating
their 40th or 50th wedding anniversary and there's like 14 courses and during the third course the waiter overhears the wife saying to the husband do you remember our first date our first date in New York it was rightin that Park and you bought me a hot dog cuz that's all we had was $25 cents you bought me a hot dog from a hot dog cart right there in Madison Square Park so the waiter goes backto the kitchen and somehow they get a New York City hot dog with the rooll and substitute it out for the sixth course and so instead of bringing them you know clams casino whatever it is on their plateswrapped in the greasy paper is a New York City hot dog that's Hospitality it makes me cry every time I hear that story oh yeah there are a lot of really good stories in that one all right Seth
A set of strategic questions is introduced, including pricing, failure, and scaffolding. The discussion then moves into probability, good decisions versus good outcomes, and how to avoid false proxies when evaluating people and choices.
so for somebody who's thinking to themselves all right I want to sit down and I'd like to sort of shake the snow globe of my mind with some questions some more questions that I can use to land onapproaches or Solutions strategy as it were do you have any other favorite questions or perhaps counterintuitive questions any questions that that you might toss out there as good fuel for the fire I have one question to get youstarted and then two interesting challenges the question to get you started is if you were forced to increase your prices by 10x what would you do and this really unsettles people because they know what how to think aboutif they were forced to have their prices because their competitors are racing to the bottom but if your competitors weren't changing and you had to charge 10x what would you do differently well for example this is where coner
medicine came from right because all these other doctors are saying how can I take more insurance and one doctor shows up and says I'm going to charge 10 times more and this is why people are going to getin line to pay for it but it doesn't have to be luxury goods for the ultra wealthy there are lots of things where you could imagine charging 10 times more this is where the bottled water industry in theUnited States came from charging infinite times more so that's one question I like to ask another one is if you were sure you were going to fail what would you do anyway and I think that tells me alot about who you are and what you stand for two ideas then to follow that up with the first one comes from a social scientist in the 1920s and Adam Grant wrote about this in a recent book which
is the idea of scaffolding scaffolding is what effective teachers do that pedagogy teaches us that the way we learn almost everything that matters walking talking is on our own we're autodidacts we teach ourselves to failure but when thingsget more complicated like fractions people get stuck scaffolding is creating the conditions so on those stuck moments you work your way through it and then you get back on track and Scaffolding or the lack of it explains inlarge measure why people in some communities can't figure out how to get out of their rut and move up different status categories because when they hit a speed bump at 9 or 10 or 12 years old there isn'ta learned wise focused adult Maybe who could help them through that moment M the scaffolding are the ladders we build to help people get through the tough stuff now are those traits like grit resilience whatever it might be
are they lenses of looking at things like failure is feedback are they other tools what is the scaffolding all of it so if you've ever tried to use Fusion 360 from Autodesk the scaffolding is almost non-existent like I'vebeen building and using software for 50 years I can't figure out how to use this software and when I get stuck there's nothing to hold on to whereas you know part of the magic when the team built thefirst Mac is every app had the same structure so there was scaffolding built in you knew where to go to get to the next thing if you're trying to build an entity of any scale where is the scaffoldingfor one to customer gets frustrated where's the scaffolding for when someone's going to Veer off and use a competitor where's the scaffolding if they don't know what to tell their boss or their friends if you give them handholds
right where the handholds belong you know think about a rock climbing wall people are going to grab the handhold so you can't take them through the whole thing but you can make sure there are handholds in the rightplace so where is the scaffolding and you know the idea that Yahoo had was to put buttons everywhere hundreds and hundreds of buttons and the idea Google had was to give you a fill in the blank that whenchat GPT came out the scaffolding was type something and that puts a lot of pressure on what it writes back because if you had type something it says I don't know you're not going to use it three timesyou're going to stop so you're making these bets on what's it going to be like what's going to happen after that mhm and now I want to talk about probability in games and decisions so if I have a
standard deck of cards what is your deck of cards called by the way it's called the strategy deck the only place you can get it is at seth.blog mhm and it's really cool anyway if I have a deck of 52 cards and I say Tim pick a card what are the odds you're going to get an ace 4 and 52 right one out of 13there we go cuz the deck is stacked there are 48 n AC es and for Aces mhm every time we engage in any probabilistic thing the deck is stacked and it is on us to know before we makea bet how many aces are in the deck so if you're applying to get into a famous college in Boston and you are fully qualified by every one of the published measures you have a one 15 chance ofgetting in because after they take all the qualified people now it's pretty random one in 15 that's how the deck is stacked if you are super super good at football and you're applying to a small college and they
have football scholarships you have a way better chance than one in5 of getting in MH because that deck is stacked differently so what we seek to do do when we're making a bet is show up in a placewhere the odds that the card we need is going to be in the deck M that's what probability is probability means that when you see poll results it says there's a 60% chance this person is going to winthe election that doesn't mean it's a tug award between six and four and the six side is going to win every time doesn't mean that at all it just means there are six Aces and four non Aces andthere's going to be a random selection and you're going to get the card you get so what we need to do when we're thinking about our strategy is not focus on how hard we're working or how much we
want it to work out we need to focus on what's the deck like and so your journey into archery is partly based on the fact that you have thought through who else is going to show up at thistournament yeah cuz if there were a million people who were Dev Ed their lives to archery I think you would understand your chances of winning a medal were very small I would pick something else yeah probably just giventhe time constraints and the fact that yeah I'm coming in with I guess five to six months of serious training and some of these folks have been shooting seriously since they were eight years old so got to pickthe right category got to pick the right deck and so then the thing that goes with that is from from our friend Annie Duke which is what's the difference between a good decision and a good outcome and the
question that I would ask entrepreneurs who think they're innovating and leading is are you okay making good decisions that don't lead to good outcomes and most people if they're telling the truth the answer is no and in mycase the answer is yes I have disciplined myself that's one of the things I'm really proud that I'm good at so what are we talking about here so in her book she talks about the Seattle Seahawks it's theSuper Bowl it's Fourth Down they're on the two or three yard line if they score they win if they don't score they lose Pete Carol calls a pass play calling a pass play is a really good decision becauseif you do the math if you analyze all the situations a pass is more likely to score than a run he calls a pass it's incomplete they lose everyone says Pete made a terrible decision he should be fired
no he made a good decision but he didn't get an ace he just got one of the other cards that's okay you should celebrate that because you still made a good DEC if you buy a lottery ticket andyou win you made a bad decision you should never buy a lottery ticket winning is just a weird anomaly but the deck is stacked against you don't do that don't play games you can't reliably win mhm when I'mtalking to people about decision making I say you know tell me the last time you made a really good decision and they do and it always has a good outcome because they're measuring the wrong thing and corporations areterrible at this corporations promote people who make bad decisions and have lucky outcomes and they don't promote people who make great decisions but didn't get lucky wall Street's probably the the greatest breeding ground for that particular selection process
put that aside that that Petri ish just fascinating environment for sure so how do you cultivate that then how would you suggest cultivating that I mean I do think learning to play a game maybe doing some very lightweightinvesting is another way to do this where certainly in the early stage game anyone who's going to last and be successful in longterm playing that game is going to have to get very good at accepting losses where theymade a lot of good decisions because there's so much outside of your control as well how do you think about cultivating that good decisions over good outcomes well one of the things we're trying to do is avoid falseproxies and false proxies are easy to measure But ultimately not useful so how fast someone types is a false proxy for whether they're going to be a good programmer mhm it's easier to measure typing speed than programming speed
but we measure the easy thing we measure does that person look like me or look like I think someone should look I was talking to someone he said the last nine people this company hired had rode Varsity crewat one of three colleges this is not a useful proxy right this is just a lazy shortcut and then we turn it around when we think about decision making and we say are are we going to insulate ourdecision makers from useless information so if you're a stock Trader and we work at an organization where we've promised our investors we're making fiveyear plans that were here for the long run and you have a big Bloomberg Tickeron the wall you have really confused things because now you're measuring the wrong thing in the wrong way MH and so the discipline as you pointed out you know in investing and making small Investments you don't even have
to spend money you just have to write down your predictions and you have to be able to when you're working with other people articulate why did you make that decision it's not okay to say I just feel likeit that's just a hunch that's not how we actually need to make our decisions show your cards make your argument make your assertion then your peers can talk to you about whether that's a good decision or not ifit's a good decision you get rewarded regardless of the outcome because the outcome is out of your control that's just did you get an eight or did you get an ace how have you corrected course or spotted false
The speaker explains how to identify real ability through projects rather than interviews and how to work with people who can receive feedback. Examples from the Carbon Almanac, medicine, and workplace behavior show the importance of setting clear standards.
proxies in your own life or many projects Industries Etc here's a really useful one I was arrogant and thought I was good at hiring people because I was looking for signals that were ultimately false proxies and I couldsee those signals faster than most people certain questions or certain attitudes and interviews and things like that but as I thought about it afterwards what I really wanted from people who I was hiring to work with to doa job was for them to do the job not to be good at interviewing mhm and so I made the decision to only work with people I've worked with before that doesn't mean only people I've met before itmeans if I'm going to hire you I'm going to give you a project and pay you to do it and that's your interview and we never even need to meet in person but if I've seen you work on
a project like I want you to work on a project there's no more false proxy right and as a result I've been able to work with a much more diverse group of people geographically background wise skill set becausenow it doesn't matter if I want you to come over for dinner it matters that we're doing this project together and I know you know how to do this part of the project so the carbon Almanac every singleperson could do anything they wanted once and then if the community said we really like that they got to do it more and so one guy from India Vivic he showed up and he wrote One article and itwas terrible and someone gave him some feedback and the second one was better and he was going to quit but he got some more feedback and the third one was so good he ended up writing 17 of the
Articles because he figured it out and we like great we trust you now just go and go and go and do it MH and in a world that's so open to connection to strangers it feels like that's theappropriate way to interact with the work which is to work with people who want to do the work and who can show you they can do the work how do you read if someone is open to receiving feedbackI guess the answer might be you give them a project and you give them feedback that's the only way to know so maybe you've already answered my question but are there other indicators so I think back to thisidea of you know Jeff Bezos is creating the conditions for who wants to invest you creating the conditions for your community there are certain projects that I want to work on on where I'm the Creator or I want
to work with other people where taking feedback isn't an asset where you're looking for somebody who has a point of view this is what I do take it or leave it MH and there are other things where takingfeedback is super important because that's going to keep things in sync and for me it's not giving someone who doesn't match that a pass just cuz they're good at what they do and this is analogous to having bullieswho work in your company I had a guy who worked for me years ago who was a yeller he wasn't a bully but he was a yeller and we had one big open office and the second time Iheard him yell at someone I quietly took him aside and I sat him down I said if you ever yell at anyone ever again I'm going to fire you on the spot it doesn't matter that you're the most
valuable person in the company cuz you are doesn't matter that you're the most senior and skilled person if I let you do that I have made a statement about what it's like around here and he sent me athank you note 10 years later because he never yelled at anyone at work ever again wow even after we stopped working together because I was the first person who had the guts to say we don't want bullies aroundhere yeah and the same thing's true if you really need someone who can take feedback in a role you've got to say if you can't take feedback you can't stay and it doesn't doesn't have to be a confrontationit can just be what are things like around here People Like Us do things like this will would be an example of someone who you don't want or you don't require to take feedback I mean I can probably
come up with a few as I search but you probably can be faster on your feet with this a surgeon yeah I was just going to say neurosurgeon I went to a dermatologist four months ago and he wasterrible he not only was terrible as his bedside Manner and terrible and that he didn't read the notes that I gave him and he terrible that he prescribed a drug I already had a prescription for jeez he didn'tmake me better right so I wrote a letter to the head of medicine for the whole thing and they have obviously systems in place to make people like me be quiet but not to actually listen to people likeme because they're taking the position don't come here if you don't want to do what our doctors tell you to do cuz we're busy enough already we just want who aren't going to push back and there are plenty
of people who if you need something that is way outside your area of expertise right if you hire chip kid to make the cover for your notebook which you should because he's a genius chip should not listen to
This chapter covers how the speaker uses AI tools like Claude and Perplexity in daily work. It also warns about AI-driven commoditization, enshittification, and the risk of businesses using AI to cut corners.
your feedback because he's chip kid damn it fair enough how do you use Ai and how do you foresee using AI yourself I use it every day for more than an hour I think it's electricity for our Centuryin the late 1800s there were companies that said yeah this electricity things interesting but we're not going to be an electricity company and they're all gone right that electricity is now you're not an electricity company you're just acompany that uses electricity and the same thing is true I believe with AI I will tell you and I'm not afraid to say it out loud I think chat GPT is arrogant and lazy and I use it asa last resort claw.is a dear friend I love Claude A we have great conversations it's empathic it's self-aware it warns you it might be hallucinating and when it makes a mistake it's eager to correct it and I use perplexity exclusively I
almost never do a search with a search engine yeah every word I publish I wrote but what I will do with Claude for example is I will say here's a l of three bullet points can you think offour more and it's great at that and then I'll rewrite them and now I'll have five bullet points and I'll be it's much better than if I hadn't engaged with Claude if there's a concept in the world thatI don't understand I'll say to Claude can you please explain it in 300 words to a college student and that helps but I did it once and I still didn't understand it and then I said said can youwrite it to me like a Seth Goden blog post and it did and it did a terrible job but now I understood it so I rewrote it and I said do you think this is better and it said
oh yeah that's much better and I said thank you I'll tell Seth and Claude said do you know Seth Goden and I wrote actually I am Seth Goden and I'm not making this up he then wrote I can'tbelieve I'm talking to you your books have changed my life and then named like four of my books and it changed the way I'm like all right I'm in Forever you got me I don't know how you didthat but we're friends for life all right I seem to have a similar use pattern with with Claud and perplexity also although I haven't I haven't uh s bag them just yet but what do you think people aregetting right and wrong about AI if that is a good question no it's a great question I think that they are getting wrong their expectation that it be fully baked and a magic trick every day MH when I
think about the dawn of the internet and how creaky it was and how fast this is going what it is now is amazing but when when we add to it persistence and when we add to it ubiquity andwhen we add to it the ability to make connection it's a whole different thing yeah just a completely different thing the second thing is people tend to use it as a one shot like a search engine ask aquestion get an answer but what it's already good at is a protracted dialogue back and forth so I had a pump in my house that's stopped working and I couldn't find someone to service it I took a pictureof it I put up the clot and I said this isn't working work with me for the next 10 backs and forth let's figure this out and it would say go downstairs and take a picture of this part
all right try this and we went back and forth and back and forth and it suggested something and I said that's not going to work and we figured it out and we fixed it that idea the fact thatClaude is already better at many medical diagnoses over time than a human and well it should be because it knows so much of the past of every single case not just the cases your doctor has seen right ifwe're willing to engage with that for people who are knowledge workers I think it's a GameChanger and then the other thing I think people need to wake up to is if you do average work for average pay AIis going to be able to do it cheaper than you for example radio ology already we can use AI to do a you know a wrist x-ray as well as a mediocre radiologist so if we can do it
instantly and for free other than licensing you got some problems so the opportunity is either get AI to work for you or be prepared to work for AI what are your greatest concerns around AI if any or foregoneconclusions about challenges in the future I think that Corey Doo's work on inid ification is super important what was that word Oxford dictionary word of the year two years ago inhi ification okay inhi ification is what happens aftera business that uses the network effect gets lock in and decides to aggressively make things worse for its users to make more money and we could think of 400 examples right now we're not going to do that rightbecause you know you say well I can't switch cable companies it's this too much of a h and the same thing's true for social networks and everything else yeah that capitalism has built into it this Doom Loop that
is getting faster and faster that says the race to the bottom pushes companies to mistreat the people they've locked in to make more money because that's what they get rewarded for mhm and most things things that the internettouches start as a miracle there are huge prizes for the early adopters and then soon the desire to serve a different constituency kicks in and it gets worse and one of the things that makes it worse in ahurry is advertising so I'm really nervous that these organizations that have raised billions and billions and billions of dollars are going to start shortcutting things to either get bigger or get more profitable faster and because we don't knowhow they work we have no clue because it's going to be hard to switch because there aren't going to be many competitors it often leads to just a yucky mess I think that's way more likely than a general
artificial intelligence that takes over the world and turns us all into paper clips I don't think that's going to happen anytime soon more likely just to have business incentive driven Ina ification yeah yeah I would say that seems
The episode closes with a challenge to use influence and resources to build something meaningful for the future. The speaker encourages listeners to ask uncomfortable questions, think long term, and act with kindness toward their future selves.
like a safer bet well Seth are there any closing comments or challenges you'd like to issue to my listeners as we begin to wind to a close or anything that you'd like to add that that I have managto somehow dance around there's nothing better than starting a Tim Ferris podcast and nothing worse an ending one cuz you don't know if it's going to happen again anytime soon yeah the challenge is super simple the people wholisten to your podcast have their hands on the levers and they have influence and they have resources and they don't have to hustle for a nickel they could make things that really matter and so the challenge is takea deep breath and say what can I build that the me of 5 years from now is going to say thanks thanks for walking away from those on costs thanks for ignoring those false proxies thanks for asking uncomfortable
questions in service of making things better because that person 5 years from now they're going to be here soon and it's really great to pay the price and put in the work to become that person and today isa good day to start the best day to start thank thank you Seth it's always so nice to see you and I encourage people to check out of course this is strategy you can find all things Seth atseth.blog we'll have show notes and links to everything at tim.Blog podcast is there anything else you'd like to mention we could of course include and we will include seth.blog which is where people can also get the deck of cards if I'm not mistaken is that the right URL and the chocolate bar and a chocolate bar something for everybody we didn't even get to talk about the
system of cheap chocolate we'll do that next time okay Cliffhanger for next time we will talk about the system of cheap chocolate and I'm sure much much more well Seth as always what a pleasure nice to see youand to everybody listening till next time be just a bit Kinder than is necessary to others also to yourself but do ask those uncomfortable questions that's being kind to your future self to your to himself and as alwaysthanks for tuning in