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Farnam Street’s 2019 Annual Letter to Readers

Most public companies write an annual letter to shareholders.

At their best, these letters represent an opportunity for the people entrusted to run the company to communicate with the people who own the company, the shareholders.

At Farnam Street, we are obsessed with you, our readers. You trust us with something far more valuable than money: your time. Reading Farnam Street or listening to The Knowledge Project means you’re not doing something else. Our job is to make sure your investment in us is getting an above-average return.

I write our letter each year. As you’ll see, there is no shortage of mistakes and lessons learned this year. (You can find past letters at the following links: 2015, 2016, 2017, and 2018.)

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Brain Food (email newsletter)

Our newsletter mailing list has grown to roughly 250,000 subscribers from 185,000 at this time last year. That’s about a 35% increase in the headline number of readers over last year.

The number is somewhat irrelevant, however, if you don’t know how many people are actually opening the emails. I’m pleased to say our open rate is about 40%. This is down from last year’s 45% but well above the industry average of 20%.

We use a number internally called “effective readers,” which takes the number of email subscribers multiplied by the average open rate to provide us with the number of people who are laying eyes on our content. Last year this equation worked out to be 185,000 × 0.45 = 83,250. This year, it was 250,000 × 0.4 = 100,000. While not too shabby, this 20% growth in effective readers is still far less than 35% growth in the headline number of readers.

Like most of you, I get really busy from time to time. When I’m busy, I am more likely to unsubscribe from things—not because I didn’t get value from them but rather because I just needed to focus, and yet another email was a distraction at that point in time. With this in mind, we created something we’d never seen before. Rather than have you unsubscribe from Brain Food, we now give you the option to take a 30-day break from the newsletter. With one click, we can now temporarily unsubscribe you and see you again in 30 days.

You’ve probably noticed that we’ve been experimenting with pop-ups on the website. That could be one reason open rates are down slightly, as people that have little friction to sign up for emails rarely value our content as much as people who go through a bit of effort to sign up. Right now, the pop-ups are being used more to test wording that resonates. Expect them to mostly disappear soon.

Farnam Street Blog

Around this time last year, we were the 33,000th most popular website in the world. As I write, we’re the ~25,000th most popular site. This isn’t a number we put a lot of weight into as we’re typically in the 27,000–33,000 range. While it seems like we’re not moving up much, it takes a lot to stay in the same place.

One noticeable change that we’ve seen is that the site is easier to share now because of our new URL, fs.blog, rather than the old one (farnamstreetblog.com).

While we made small changes to the aesthetics of the website in 2019, you might see slightly more noticeable ones in 2020 aimed at improving the reading experience and the overall experience on mobile.

We published 31 new articles this year. The following list includes some samples that we’re particularly proud of:

Events

In 2019, we offered two public Re:Think Workshops, one on innovation and one on decision-making. Two years ago, these events sold out in a week. Last year, these events sold out in a day. This year it took under 4 hours for the first and under 90 minutes for the second to sell out entirely. (Join the waiting list on this page so you don’t miss out on future dates!)

While we make many small changes every year, we made two this year that involve how people arrive at our events that I wanted to highlight. First, our sales page doesn’t make it easy to tell your boss the “five things you’re going to learn” from our workshops, so getting approval means you have to do some work; second, all tickets are non-refundable and non-transferable. Our goal with these changes was to have an event where everyone wanted to be there, and it works. The motivation and quality of attendees is amazing.

The events are small by design. Fifty people is about the maximum number of folks you can get to know over our short time together. The reason so many events are bigger than fifty people is economics. Events have high fixed costs, and once you hit about fifty people, anyone else you can sell a ticket to is mostly profit. However, putting more people in the room doesn’t make for a better experience for the participants.

Rather than increase the number of people, we’ll be increasing the number of events. We will be running four events in 2020, and they’ll be even better than before, as we’re making a significant upgrade to the content.

We’re also exploring a mega-event in 2021 aimed at bringing together speakers that are not commonly found together.

The Knowledge Project

The Knowledge Project produced nearly a show every two weeks this year! Guests this year included Josh Wolfe, Celeste Headlee, Laura Markham, Howard Marks, Jason Fried, Scott Page, Daniel Gross, Gabriel Weinberg, Thomas Tull, Shelia Heen, Jim Dethmer, Jonathan Haidt, Sue Johnson, Hugh Howey, Greg Walton, Shep Gordon, Emily Nagoski, Jim Collins, Daniel Kahneman, Steve Schwarzman, Scott Adams, Esther Perel, and Neil Parischa.

Last year around this time, we had forty-seven published episodes and 4.8 million downloads. This year we stand at seventy two published episodes and over 11 million downloads. In a world full of sound bites, people are growing to appreciate our deep and nuanced conversations with insightful guests and experts from a wide variety of disciplines. This month, we were honored to be recognized as one of Apple Podcasts’ “Best Listens of 2019”.

The podcast increased in subject diversity this year as we started to explore more areas of life. In 2019, we dove into topics like parenting, sex, and relationships. You can expect that the podcast will continue to explore a wider variety of content than the blog. Upcoming shows dive into anxiety and adversity with psychotherapist Barry Michels, design with legendary car designer Frank Stevenson, and math with professor and mathematician Steven Strogatz.

We did choose not to air an episode this year. I agonized over this decision for weeks and everyone on the team scrambled to try and make it work, but I ultimately pulled the plug. While it’s never fun to send an email to a guest and say we’re not going to air the show, in some cases it’s the best thing to do. The guest would have been unhappy with the show, and since we couldn’t hit the depth we strive to achieve, our listeners would have been unhappy as well. To make it a bit easier in the future to not air a show if need be, we now tell guests we promise to record but not necessarily air the show. This is a production decision. (If you’re curious, only one guest has asked us not to air a show that we’ve recorded, and that was because they felt they revealed too much of their secret sauce.)

Speaking of production, we started editing episodes a little bit for length and flow. Before episode 64, we rarely edited anything. Some episodes, like Jim Collins’, required virtually no editing. Others are pared from two to three hours of recording down to an hour or so of air time.

However, we’ve made the choice to back off on the editing a bit, so you might notice a bit more meandering in the future. We’ll continue to play with this in the future on an episode-by-episode basis to make sure we get the right feel. We’re not artificially trying to make our episodes any predetermined length of time. If we record three hours of gold, you’ll get three hours of gold.

We’re always on the hunt for amazing people and would love to explore more Eastern thinking as well as feature more amazing women. If you know anyone interesting and insightful in line with our previous guests, please drop me a line at [email protected]. While I can’t reply to all inbound messages, I will reach out if I’m interested.

Social media

You can follow us on Twitter, Instagram, Facebook, and now Farnam Street TV (FSTV) on YouTube.

If you’re curious about how we tackle social media, follow us on YouTube and watch as we try to add value in a noisy world.

Courses

We spent a lot of time and effort on a learning course in 2019 that we ended up parking for the time being. We think we have most of it right; however, there was something that just wasn’t working right now. While it sucks to put something on hold after investing a lot of time and effort in it, I expect we’ll come back to this sometime in the near future.

We began work in 2019 on a course we think you’re going to love that’ll come out hopefully in late 2020 or early 2021.

The three mini-courses we’ve already done (The Art of Focus and The Art of Reading being the main two) are now part of the Learning Community. We don’t anticipate making bigger courses part of the Learning Community in the future but will likely continue to do smaller ones inside it.

The Learning Community

We have no aspirations of running the biggest membership community on the planet—just the best. Our Learning Community isn’t for everyone, and yet we continue to collect remarkable people from all walks of life, including entrepreneurs, Fortune 50 CEOs, professional coaches and general managers, athletes, students, teachers, Nobel laureates, authors, and more. We’re brought together by our shared kindness, curiosity, and desire to help one another become more effective.

Not only is the Learning Community a way to support what you love (FS!), join our virtual reading group, get transcripts to all of our podcasts, participate in monthly AMAs with authors, access exclusive meetups all over the world, and so much more—it’s a way to become part of an online community that wants to get better without the shortcuts. A lot of members find the private forum a way to get answers on anything from what book to read next to career and relationship advice.

If you find value in Farnam Street, we hope you’ll consider joining the Learning Community or gift it to the ones you love. Plus, when you join, you’ll also be helping the planet. Since Learning Community members read so many books, we thought it only fitting that we donate a portion of every membership to plant more trees so our forests stay nice and healthy.

If you’re curious, we offer gift memberships and discounts for teams. Visit here for more details.

Books

I’ve been talking about books for three years—and they finally happened. Not only did they finally happen, but we hit The Wall Street Journal’s best-seller list for The Great Mental Models Volume One: General Thinking Tools. To our surprise, the book should be translated and available in a few countries by the end of 2020.

I wrote these words last year and have to eat them:

“There is some bad news, if you’re eager to get your hands on a physical copy. We’re only printing 3000 physical copies. . . . I don’t have an easily explainable answer to why only 3k hardcovers, so I won’t even try to explain it. Learning Community members will know about the physical copies first and get first dibs.”

While we gave away 3,000 copies of the original hardcover to the Learning Community in a feat of logistics I never wish to repeat, a friend of mine, Matt Mullenweg of Automattic Inc., reached out after receiving his copy and asked us to print more and make them more widely available.

After a bit of persuasion, I agreed to partner with Automattic on the book, make a few changes, and reprint the hardcover in another limited run. We printed another 7,000 books, and when they’re gone, they’re gone.

Book two should be out before March. It’s printing as you read this. Book three should be available before the end of 2020. One small note: we’ll be printing fewer hardcovers for book two than book one, and fewer still for book three than book two. (Sales in series tend to decline as volumes increase, and we have no desire to store books for a year while they sell down.)

All of the content in the Great Mental Models series will eventually be available for free on the internet at some point in the future. You can read more about the project and what we’re trying to accomplish here.

There are three main criticisms of the The Great Mental Models Volume One: General Thinking Concepts, listed as follows:

  1. The audio is dry.
  2. The book is too short.
  3. The content on the website is so good, why pay for the book?

Let me try to address these briefly.

  1. The audio is dry. Yes, it is. There are two main issues with this. First, the way I read the book wasn’t good enough. That’s on me. Second, it’s a reference book, and reference books don’t tend to make good listening to begin with, so audiobook professionals would be much better narrators. We’ve offered to have the audio re-recorded at our expense but have no control in whether that happens. The rest of the books in the series will be read by a professional.
  2. The book is too short. You can’t please everyone. I hate reading books that are too long more than I hate reading ones that are too short. We didn’t want to waste your time and take what should be 40,000 words and make it 80,000 because it feels like you got more. That’s the type of trickery we shy away from. (With that said, book one is by far the shortest book in the series.)
  3. The content on the website is so good, why pay for the book? I’m not even sure where to begin with this one, as we’ve promised to put all the content of the book online at some point in the future.

The Trade Book

I signed a book deal with Penguin Portfolio in 2018 for a trade book and am beyond excited to be working with the team there, especially Niki Papadopoulos. I’ve wanted to work with Niki ever since she came to one of our events four years ago. I’m busy working away on this book which, assuming I hit my deadlines, comes out in 2021.

Team Farnam

Vicky is our new operations ninja who does nearly everything behind the scenes better and more effectively than anyone I’ve ever met. Devon is leading the charge on our Learning Community, making it more valuable for members. Rhiannon is my partner in crime on the Great Mental Models books. Last but not least, Rosie is helping us with research and more.

Sponsorships

“Most sponsorships are a screaming bargain compared to traditional media buys, particularly if you’re trying to reach an elite or elusive [audience].” —Seth Godin

Now is the perfect time for your company to reach a highly influential audience of decision-makers. There are a number of reasons to consider a sponsorship over the traditional pay-per-click model, including the following:

  • This is the best way to reach our audience. Farnam Street readers are educated, affluent, and leaders in their fields. Our readers trust us, and we work hard to earn that trust. That trust extends to our site’s sponsors. Becoming a Farnam Street sponsor allows you to reach this target audience directly, maximizing your value per view.
  • It offers you affiliation with the best. Farnam Street is widely considered to be one of the best websites on the internet. Sponsoring Farnam Street will increase your company’s credibility in the eyes of existing and potential clients. We’ve seen this over and over again with past sponsors from Slack to Metalab.
  • It inspires your organization. When your employees find out you’re sponsoring Farnam Street, they’ll see that you share similar values and are committed to lifelong learning. One CEO called his company’s response “The Farnam Effect” after he got over twenty positive emails from staff and customers after sponsoring us.

Our website sponsors in 2019 were Royce Investment Partners and Greenhaven Road Capital.

Our podcast sponsors in 2019 were Metalab and Mealime.

Our newsletter sponsors in 2019 were Royce Investment Partners, Greenhaven Road Capital, Atoms, Masterworks, Brave, IVPN, Revtown,Legacy, The Information, MUD/WTR, Tulco, Alpha Sense, Ideo U, Ladder, Vollebak, and kaam.work.

If you’re interested in partnering with us in 2020, send me an email at [email protected].

Ethics

I take your trust in Farnam Street and in me very seriously. This is exemplified by the following:

  • We are not paid by any company for any opinion or article posted on Farnam Street or in any public forum, including podcasts, Facebook, YouTube, or Twitter.
  • We receive free products all the time in the mail. If we use them and like them, we try to tell people about them—there are no affiliate links.
  • Farnam Street participates in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising commissions by linking to Amazon. Simply put, if you click on our Amazon.com links and buy anything, we earn a small commission, yet you don’t pay any extra.
  • Sponsors of our newsletter and website are not allowed to run any code that might track your internet presence. Website sponsors operate on a percentage-of-traffic basis and do not compensate us based on page views. This helps align our incentives with yours.
  • We do not have a Facebook tracking pixel, so we’re not enabling companies to target our audience.
  • We don’t give out your email address to any third parties.

We’re not always perfect, but we try to be transparent and keep our promises.

Thank you

I’m looking forward to a wider variety of content on the blog in 2020 with a mix of deep dives and pieces exploring new subjects.

Thank you for letting me learn with you.

Shane

 

Influence, Gender, and Defying Social Conventions with Friedrich Nietzsche and Jane Austen

In the third installment of our FS Bar series, philosopher Friedrich Nietzsche and writer Jane Austen sit down for a drink and discuss each other’s work, gender, philosophy, and try to find common ground. As always, they are attended by our intellectually curious bartender Kit.

***

We are back at the FS bar. Kit is going through the stock to prepare an order. The door opens and Friedrich Nietzsche lurches in and settles himself at the bar. Kit puts down her paperwork and moves a few bottles to the side.

Kit: Good afternoon. What can I get you?

Nietzsche: Beer. (He casts his eye over the taps.) It seems that no one has yet determined how to elevate the craft of brewing. I see even the French make some.

Kit: I’m pretty good at matching preferences to types. What are your must-haves in a beer?

Nietzsche: Strong. Illuminating. And thick enough to hold up a spoon.

Kit: (grins) I love a challenge.

Nietzsche: Hmph.

(As Kit is getting Nietzsche’s beer ready, Jane Austen walks in. Elegantly, if somewhat tentatively, she takes a seat at the bar. Kit puts Nietzsche’s beer down in front of him before turning to Austen.)

Kit: Hi, what can I get you this afternoon?

Austen: Port please.

Kit: Sure thing.

(There is a pause that stretches and becomes slightly awkward.)

Nietzsche: (starts speaking to Austen) I’ve read some of your stories you know. The ones with the alliteration. Sense and Sensibility sounded promising until I realized none of the characters had either.

(Austen takes a sip of the port that Kit has just set down.)

Nietzsche: Really, what was the use of all that sentimental drivel? Man should be required to confront his stupidity, not hide behind it moaning about useless nonsense. In my last book I didn’t waste time trying to comfort those who cower behind the lies they have come to worship. A mirror or a strong knock on the head is what’s required. Not giving ignorance legitimacy.

Austen: Well, I did desire to make some money, and thus did not have the luxury of completely pissing my readers off. You understand why I had to be a fair bit more subtle in my take-down of social convention.

Nietzsche: (his eyes light up) I must have missed that. I was obviously confused by the happy endings. How, despite all the absurdity, it all works out okay in the end. That seems to imply that social convention works.

Austen: Giving readers a happy ending helps them digest the rest. If you tear everything apart and then have your characters die in misery, there is no hope for the reader. If you want them to change their thinking you must give them hope there is still time and a reason to make that change.

Nietzsche: People who need to be coddled like that are beyond benefiting from reading.

Austen: I think it is worth the effort, to try to reel them in before I cut their legs from under them. The more someone enjoys a story, the more they will see it through to the end.

Nietzsche: What people will pay for.

Austen: What they won’t.

Nietzsche: Lots of people read my work-

Austen: Out of sheer morbid curiosity. Dying to know who you will next assault. But you and I aren’t so different. What they come for isn’t what they leave with.

Nietzsche: (regards her for a moment) I doubt it. Most people are too invested in the status quo and too ashamed of their ignorance to think for themselves.

Austen: And yet here we are. Having managed to think ourselves out of the primitive struggle for daily survival. To create language and steam engines and leisure time. So, surely, the odd human occasionally manages to think for themselves, dragging the rest of us along.

Nietzsche: Not without considerable difficulty.

Austen: Yes. But we are up to the challenge, you and I, are we not? (pause) I read Twilight of the Idols in its entirety you know, despite it having no description of twilight or anyone to idolize.

Nietzsche: (takes a sip of his beer, trying to hide a smile) And you think I should have been kinder. Thrown in a puppy or some of that romantic nonsense that has taken over society like a cancer.

Austen: Not at all. I do think you missed a great opportunity to further decimate the social systems that lead to the kind of thinking you seem to abhor.

Nietzsche: Really? And where was that?

Austen: In your book you talk about the progress of an idea, how it grows more refined, more enticing, more incomprehensible. You say it becomes more like a woman. By doing this, by effectively reducing women to be simply what they appear to men, you take away their humanity. And when you do that, you place women outside of the changes you are arguing for.

Nietzsche: Explain yourself.

Austen: Christianity has also reduced women to objects solely to be used by men. By being aligned with the church’s thinking you reinforce the same power structure you are trying to take down.

Nietzsche: (stares at her for a moment) I should have put woman on an equal footing with man?

Austen: If only to anger all those priests and vicars.

Nietzsche: (pauses) That isn’t why I write you know, to provoke outrage. I’m trying to show people how weak they are. And how much more they could be.

Austen: There is greater potential everywhere. Women are both subject to the same institutions and have the same potential for overthrowing them as men.

Nietzsche: Hm. This from the woman who wrote “it is a truth universally acknowledged that a single man in possession of a good fortune must be in want of a wife.”

Austen: Oh Mr. Nietzsche, you are smart enough to see the humor in that. Something that is true and absolutely shouldn’t be.

Nietzsche: Yes. People laugh. And then they keep doing it anyway.

Austen: And maybe one day they’ll realize it makes them chuckle because it’s absurd. And then they will stop throwing their daughters in the path of every man with an excellent income and a large property. And maybe the daughters will start to do something else when they aren’t saddled with these expectations.

Nietzsche: I agree with you on this. Women have much more to offer outside the confines of marriage.

Austen: I’m aware of your history, so I will take that comment in the spirit it is intended, with my tongue in cheek.

Nietzsche: And has it made a difference then, your writing?

Austen: (sighs a little) Possibly only to me.

Nietzsche: So here we are then, both of us wasted talents who sought to change the world and who failed entirely.

Austen: You don’t believe that.

Nietzsche: No. It is depressing how little happens in one’s lifetime, but there it is. The Greeks didn’t become interesting until a thousand years after their heyday. Perhaps you and I will both be on a stamp or a bank note one day.

Austen: A girl can dream.

Nietzsche: (Raises his glass in Austen’s direction) Well, Ms. Austen, it hasn’t been as much of a waste of time as I anticipated.

Austen: (smiles) Same to you Mr. Nietzsche, same to you.

Tradeoffs: The Currency of Decision Making

Every decision we make carries an opportunity cost. If we don’t budget wisely, we end up wasting time and energy on things that don’t matter. Here’s how to do it right.

***

Economics teaches you that making a choice means giving up something. — Russ Roberts

The disregard of tradeoffs and opportunity costs play out in the same pattern again and again in our lives. We try to do everything and end up accomplishing nothing.

If you’re young, you think you can go all out in your career, have fulfilling relationships, travel on a regular basis, keep up with reading and social media, go without sleep, take out unnecessary credit card debt, and start a family at the same time. The end result is always a total meltdown.

Even if you are twenty or thirty years past this point, you are not immune. Every day we are faced with choices on how to invest our time, and we all can be guilty of the same thing: Taking on too much without properly understanding the costs. The problem is a misunderstanding of the importance of tradeoffs.

The dismal science

It’s not always that we need to do more but rather that we need to focus on less. — Nathan W. Morris

Economics is all about tradeoffs. A tradeoff is loosely defined as any situation where making one choice means losing something else, usually forgoing a benefit or opportunity. We experience tradeoffs in zero-sum situations, when a plus in one area must be a negative in another. A core component of economic theory is the study of how we allocate scarce resources and negotiate opportunity costs.

Economics offers tools that we can use as guides for getting what we want out of life if we take economic lessons and apply them to resources other than money. We all know our money isn’t infinite, yet we end up treating our time and energy and attention as if they are.  Many of us act as if there are no tradeoffs—we can just do everything if we try hard enough. The irony is that those who know how to make tradeoffs can get so much more out of life than those who try to get everything.

That’s not to say we can’t get more out of our time investments, while staying within the limitations imposed by mental and physical health. We can get more efficient in certain areas. We can combine activities. We can decide to focus on one area for a while, then switch to another. We can find plenty of smart ways to achieve more.

But blindly trying to overstuff our days and stretch our minds to their limits is foolish, whatever the self-help gurus and hustle porn promoters claim. We’re sold the false belief that we can be and have everything. As Julian Baggini writes in What’s It All About?: Philosophy & the Meaning of Life, a person in a content, long-term relationship might feel the pressure to get everything right:

They may well be an excellent life partner. But perhaps they are not a sexual athlete, the world’s best communicator, the possessor of a great body, a domestic god or goddess. In their local bookshop, however, they will be told by a book that they can and perhaps should be all of these things. This can foster feelings of inadequacy.

The truth is, when you’re trying to get everything right, you’re getting nothing right.

No one has everything

When we look at other people, we end up getting the impression that they are managing to do everything. They are fantastic parents, their relationships are novel-worthy, they look amazing, their careers are epic, they get enough sleep, and they feel good all the time. This, however, is far from true. We’re just not seeing the hidden tradeoffs they’re making.

Tradeoffs can take a while to become apparent. They sometimes only show up in the long term. We see this in complex adaptive systems. Try to optimize one area and there’s likely to be a price elsewhere. Sometimes it’s an obvious negative equation, like when steroid abuse leads to organ damage, or when fancy houses mask crippling debt.

But often the tradeoffs are genuinely hard to evaluate—people with world-class math abilities are often socially clueless, and many parents sacrifice career advancement to raise their kids. We all have to make sacrifices to be able to invest in what is important to us. Tradeoffs imply that to get really great at a few things, you have to accept being mediocre at a lot more.

There are no solutions. There are only trade-offs.

— Thomas Sowell

Most of us can divide up our lives into a few important areas: work, health, family, relationships, friends, hobbies and so on. It’s an unfortunate truism that we can never quite keep everything in balance. We’re constantly going off-kilter in one area or another and having to make course corrections. When one area goes well, another is usually sliding. It’s like a game of whack-a-mole. Focus on one area and it’s often to the detriment of another.

If you feel like you’re always behind on some area of your life, it’s probably a sign to reconsider tradeoffs. If you feel like you’re always running in place without making any serious progress on anything you care about, you’re probably making the wrong tradeoffs. We often end up allocating our time, and other scarce resources like money, by default, not in the way that gets us what we want.

How to take tradeoffs into account

The necessity of making trade-offs alters how we feel about the decisions we face; more important, it affects the level of satisfaction we experience from the decisions we ultimately make.

― Barry Schwartz, The Paradox of Choice: Why More Is Less

One of the most important areas where we need to pay attention to tradeoffs is when we make decisions. It’s not always enough to consider what we stand to gain from going for option B over option A. We also need to take into account what we lose.

Most big decisions involve major tradeoffs. That’s not necessarily a bad thing. It’s neutral. It’s just the price we pay. Simply being aware of the notion of tradeoffs is enough to change the way we make decisions.

Time is our most fundamental constraint. If you use an hour for one thing, you can’t use it for anything else. Time passes, whatever we do with it. It seems beneficial then to figure out the means of using it with the lowest possible opportunity costs. One of the simplest ways to do this is to establish how you’d like to be using your time, then track how you’re using it for a week. Many people find a significant discrepancy. Once we see the gulf between the tradeoffs we’re making and the ones we’d rather be making, it’s easier to work on changing that.

For instance, understanding tradeoffs in time usage is a good way to cut out unwanted, unhelpful behaviors and wastage. It’s one thing to tell yourself you’re not going to spend half an hour reading the news every morning before starting work. It’s another matter to plan how you’re going to spend that time instead. Will you finish work earlier and cook a fancier dinner, or Skype with a friend who lives abroad, or read a chapter of a book?

The higher the value is of what you could be doing versus what you are doing, the greater the opportunity cost. We’d all agree that we’d rather devote our time to activities we value, yet we can end up not acting that way out of habit or obligation or simply because we haven’t considered what we’re forgoing. We will never manage to get rid of everything that has low value to us, but we can keep cutting it back.

Multitasking as a way of getting more out of our time without making tradeoffs doesn’t work. The tradeoff in that case is often not doing anything particularly well. If you answer emails when you’re with your kids or friends, you’re not really focusing on either. Your emails are banal and the people you are with feel unimportant. Even if we try to find ways around fundamental constraints, the tradeoffs show up somewhere.

The final requirement in order to take tradeoffs into account is that you really need to be able to let go of not being great at something. If you’ve chosen to prioritize your relationship with your kids over a clean house, then you need to be okay with letting other people see the mess. If you’ve prioritized physical activity over entertainment, you need to accept that other people are going to tease you for being ignorant of what’s going on in the world. If you’ve chosen to focus on your career versus maintaining every friendship you’ve ever had, you need to get over the pang of hurt when people stop inviting you out.

Tradeoffs aren’t always easy, which is probably why we try to avoid them.

Conclusion

If we think we can have it all, we’re more likely to end up with nothing. We can get much farther if we decide where to focus our energy and which areas to ignore. When we actively choose which tradeoffs we want to make, we can feel much better about it than when we’re forced to let things slide. We need to actively decide what we value the most.

Each of the myriad decisions we make on a daily basis carries an opportunity cost. If we don’t consider them, we easily end up stuck in situations where we’re forgoing things we’d rather prioritize. We end up lamenting what we’re missing out on against our will, unsure how this happened. But if we first consider the tradeoffs associated with the decisions we make, we can end up with far more satisfying choices.

Survivorship Bias: The Tale of Forgotten Failures

Survivorship bias is a common logical error that distorts our understanding of the world. It happens when we assume that success tells the whole story and when we don’t adequately consider past failures.

There are thousands, even tens of thousands of failures for every big success in the world. But stories of failure are not as sexy as stories of triumph, so they rarely get covered and shared. As we consume one story of success after another, we forget the base rates and overestimate the odds of real success.

“See,” says he, “you who deny a providence, how many have been saved by their prayers to the Gods.”

“Ay,” says Diagoras, “I see those who were saved, but where are those painted who were shipwrecked?”

— Cicero

The Basics

A college dropout becomes a billionaire. Batuli Lamichhane, a chain-smoker, lives to the age of 118. Four young men are rejected by record labels and told “guitar groups are on the way out,” then go on to become the most successful band in history.

Bill Gates, Batuli Lamichhane, and the Beatles are oft-cited examples of people who broke the rules without the expected consequences. We like to focus on people like them—the result of a cognitive shortcut known as survivorship bias.

When we only pay attention to those who survive, we fail to account for base rates and end up misunderstanding how selection processes actually work. The base rate is the probability of a given result we can expect from a sample, expressed as a percentage. If you play roulette, for example, you can be expected to win one out of 38 games, or 2.63%, which is the base rate. The problem arises when we mistake the winners for the rule and not the exception. People like Gates, Lamichhane, and the Beatles are anomalies at one end of a distribution curve. While there is much to learn from them, it would be a mistake to expect the same results from doing the same things.

A stupid decision that works out well becomes a brilliant decision in hindsight.

— Daniel Kahneman

Cause and Effect

Can we achieve anything if we try hard enough? Not necessarily. Survivorship bias leads to an erroneous understanding of cause and effect. People see correlation in mere coincidence. We all love to hear stories of those who beat the odds and became successful, holding them up as proof that the impossible is possible. We ignore failures in pursuit of a coherent narrative about success.

Few would think to write the biography of a business person who goes bankrupt and spends their entire life in debt. Or a musician who tried again and again to get signed and was ignored by record labels. Or of someone who dreams of becoming an actor, moves to LA, and ends up returning a year later, defeated and broke. After all, who wants to hear that? We want the encouragement survivorship bias provides, and the subsequent belief in our own capabilities. The result is an inflated idea of how many people become successful.

The discouraging fact is that success is never guaranteed. Most businesses fail. Most people do not become rich or famous. Most leaps of faith go wrong. It does not mean we should not try, just that we should be realistic with our understanding of reality.

Beware of advice from the successful.

— Barnaby James

Survivorship Bias in Business

Survivorship bias is particularly common in the world of business. Companies which fail early on are ignored, while the rare successes are lauded for decades. Studies of market performance often exclude companies which collapse. This can distort statistics and make success seem more probable than it truly is. Just as history is written by the winners, so is much of our knowledge about business. Those who end up broke and chastened lack a real voice. They may be blamed for their failures by those who ignore the role coincidence plays in the upward trajectories of the successful.

Nassim Taleb writes of our tendency to ignore the failures: “We favor the visible, the embedded, the personal, the narrated, and the tangible; we scorn the abstract.” Business books laud the rule-breakers who ignore conventional advice and still create profitable enterprises. For most entrepreneurs, taking excessive risks and eschewing all norms is an ill-advised gamble. Many of the misfit billionaires who are widely celebrated succeeded in spite of their unusual choices, not because of them. We also ignore the role of timing, luck, connections and socio-economic background. A person from a prosperous family, with valuable connections, who founds a business at a lucrative time has a greater chance of survival, even if they drop out of college or do something unconventional. Someone with a different background, acting at an inopportune time, will have less of a chance.

In No Startup Hipsters: Build Scalable Technology Companies, Samir Rath and Teodora Georgieva write:

Almost every single generic presentation for startups starts with “Ninety Five percent of all startups fail”, but very rarely do we pause for a moment and think “what does this really mean?” We nod our heads in somber acknowledgement and with great enthusiasm turn to the heroes who “made it” — Zuckerberg, Gates, etc. to absorb pearls of wisdom and find the Holy Grail of building successful companies. Learning from the successful is a much deeper problem and can reduce the probability of success more than we might imagine.

Examining the lives of successful entrepreneurs teaches us very little. We would do far better to analyze the causes of failure, then act accordingly. Even better would be learning from both failures and successes.

Focusing on successful outliers does not account for base rates. As Rath and Georgieva go on to write:

After any process that picks winners, the non-survivors are often destroyed or hidden or removed from public view. The huge failure rate for start-ups is a classic example; if failures become invisible, not only do we fail to recognise that missing instances hold important information, but we may also fail to acknowledge that there is any missing information at all.

They describe how this leads us to base our choices on inaccurate assumptions:

Often, as we revel in stories of start-up founders who struggled their way through on cups of ramen before the tide finally turned on viral product launches, high team performance or strategic partnerships, we forget how many other founders did the same thing, in the same industry and perished…The problem we mention is compounded by biographical or autobiographical narratives. The human brain is obsessed with building a cause and effect narrative. The problem arises when this cognitive machinery misfires and finds patterns where there are none.

These success narratives are created both by those within successful companies and those outside. Looking back on their ramen days, founders may believe they had a plan all along. They always knew everything would work out. In truth, they may lack an idea of the cause and effect relationships underlying their progress. When external observers hear their stories, they may, in a quasi-superstitious manner, spot “signs” of the success to come. As Daniel Kahneman has written, the only true similarity is luck.

Consider What You Don’t See

When we read about survivorship bias, we usually come across the archetypical story of Abraham Wald, a statistician studying World War II airplanes. His research group at Columbia University was asked to figure out how to better protect airplanes from damage. The initial approach to the problem was to look at the planes coming back, seeing where they were hit the worst, then reinforcing that area.

However, Wald realized there was a missing, yet valuable, source of evidence: Planes that were hit that did not make it back. Planes that went down, that weren’t surviving, had much better information to provide on areas that were most important to reinforce. Wald’s approach is an example of how to overcome survivorship bias. Don’t look just at what you can see. Consider all the things that started on the same path but didn’t make it. Try to figure out their story, as there is as much, if not more, to be learned from failure.

Considering survivorship bias when presented with examples of success is difficult. It is not instinctive to pause, reflect, and think through what the base rate odds of success are and whether you’re looking at an outlier or the expected outcome. And yet if you don’t know the real odds, if you don’t know if what you’re looking at is an example of survivorship bias, then you’ve got a blind spot.

Whenever you read about a success story in the media, think of all the people who tried to do what that person did and failed. Of course, understanding survivorship bias isn’t an excuse for not taking action, but rather an essential tool to help you cut through the noise and understand the world. If you’re going to do something, do it fully informed.

To learn more, consider reading Fooled By Randomness, or The Art of Thinking Clearly.

How Performance Reviews Can Kill Your Culture

Performance reviews are designed to motivate and bring the best out of our teams, but they often do the opposite. Here’s how to bring out the best in your people.

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If you ask people what’s wrong with corporate workplaces, it won’t take long before you hear someone mention something about being put into a performance bucket. The A bucket is for the best, and the C bucket is for the underperformers. The middle and most common bucket is B, as it spares the supervisor from having to justify why an individual is exceptional or on the verge of getting fired. The problem is that ranking someone against their peers is not the ranking that matters and is counterproductive in terms of building an exceptional corporate culture.

People hate performance reviews. And why wouldn’t they? You either come up short against the superstars, walk away being told to keep doing what you’re doing, or leave feeling like your days are numbered. In this common construct, no one is getting the information they need to properly grow, and a toxic competitive situation is created within the organization. Forced comparisons against others don’t accomplish what we want from them. We think it inspires people. It often makes them dislike each other.

The problem is the system.

The goal of performance reviews is ostensibly to help people become better, but forced ranking has two serious flaws. First, it doesn’t take account of individual rates of improvement. We’re all starting from different places, and we’re also all improving at different rates. If you always come up short, no matter how hard you try, eventually you can’t be bothered putting in the effort to get better.

The second, more important, argument is that forced rankings create a toxic environment that rewards poor behavior. When you’re pitted against your coworkers, you start to game the system. You don’t need to improve at all to get into the A bucket, you just need to make the others look bad. The success of one person means the failure of another. How likeable are you? How good are you at whispering and gossip? How big is your Christmas present to your boss? You can end up cutting others down to stand out as a star performer. But undermining the success of your coworkers ultimately means undermining the success of the entire organization.

Margaret Heffernan, author and former CEO, explained on The Knowledge Project how the relationship between coworkers is fundamental to the function of an organization:

“…the whole premise of organizational life is that together you can do more than you can do in isolation, but that only works if people are connected to each other. It only really works if they trust each other and help each other. That isn’t automatic. … You’re only really going to get the value out of organizational life to the degree that people begin to feel safe with each other, to trust each other, to want to help each other…What impedes the flow is distrust, rivalry, or not knowing what other people need.”

Most of us inevitably compare ourselves to others at some point. Chronic comparing though leads to misery. What matters is not what we do compared to what someone else does, it’s what we do compared to what we’re capable of doing. Both as individuals and in organizations, we need to pay attention to this gap—the gap between where we are right now and what we’re capable of.

Internal motivation is easier to sustain. We produce and push ourselves because we get this immense satisfaction from what we are doing, which motivates us to keep doing it. It doesn’t work the same way when your motivation comes in the form of external comparisons.

So what do we do instead?

If you must grade performances, do it against the past. Is she learning? Is he improving? How can we increase the rate of progress and development? Empower people to help and learn from each other. The range of skills in an organization is often an untapped resource.

Organizations today are often grappling with significant corporate culture issues. It can be the one thing that differentiates you from your competitors. Comparing people against their past selves instead of each other is one of the most effective ways to build a culture in which everyone wants to give their best.

Elastic: Flexible Thinking in a Constantly Changing World

The less rigid we are in our thinking, the more open minded, creative and innovative we become. Here’s how to develop the power of an elastic mind.

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Society is changing fast. Do we need to change how we think in order to survive?

In his book Elastic: Flexible Thinking in a Constantly Changing World, Leonard Mlodinow confirms that the speed of technological and cultural development is requiring us to embrace types of thinking besides the rational, logical style of analysis that tends to be emphasized in our society. He also offers good news: we already have the diverse cognitive capabilities necessary to effectively respond to new and novel challenges. He calls this “elastic thinking.”

Mlodinow explains elastic thinking as:

“the capacity to let go of comfortable ideas and become accustomed to ambiguity and contradiction; the capability to rise above conventional mind-sets and to reframe the questions we ask; the ability to abandon our ingrained assumptions and open ourselves to new paradigms; the propensity to rely on imagination as much as on logic and to generate and integrate a wide variety of ideas; and the willingness to experiment and be tolerant of failure.”

In simpler terms, elastic thinking is about letting your brain make connections without direction.

Let’s explore why elastic thinking is useful and how we can get better at it.

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First of all, let’s throw out the metaphor that our brain is exactly like a computer. Sure, it can perform similar analytic functions. But our brains are capable of insight that is neither analytical nor programmable. Before we can embrace the other types of thinking our brains have innate capacity for, we need to accept that analytic thinking—generally described as the application of systematic, logical analysis—has limitations.

As Mlodinow explains,

“Analytical thought is the form of reflection that has been most prized in modern society. Best suited to analyzing life’s more straightforward issues, it is the kind of thinking we focus on in our schools. We quantify our ability in it through IQ tests and college entrance examinations, and we seek it in our employees. But although analytical thinking is powerful, like scripted processing, it proceeds in a linear fashion…and often fails to meet the challenges of novelty and change.”

Although incredibly useful in a variety of daily situations, analytical thinking may not be best for solving problems whose answers require new ways of doing things.

For those types of problems, elastic thinking is most useful. This is the kind of thinking that enjoys wandering outside the box and generating ideas that fly in and out of left field. “Ours is a far more complex process than occurs in a computer, an insect brain, or even the brains of other mammals,” Mlodinow elaborates. “It allows us to face the world armed with a capability for an astonishing breadth of conceptual analysis.”

Think of it this way: when you come to a river and need to cross it, your analytic thinking comes in handy. It scans the environment to evaluate your options. Where might the water be lowest? Where is it moving the fastest, and thus where is the most dangerous crossing point? What kind of materials are on hand to assist in your crossing? How might others have solved this problem?

This particular river might be new for you, but the concept of crossing one likely isn’t, so you can easily rely on the logical steps of an analytical thinking process.

Elastic thinking is about generating new or novel ideas. When contemplating how best to cross a river, it was this kind of thinking that took us from log bridges to suspension bridges and from rowboats to steamboats. Elastic thinking involves us putting together many disparate ideas to form a new way of doing things.

We don’t need to abandon analytical thinking altogether. We just need to recognize that it has its limitations. If the way we are doing things doesn’t seem to be getting us the results we want, that might be a sign that more elastic thinking is called for.

Why Elasticity?

Mlodinow writes that “humans tend to be attracted to both novelty and change.”

Throughout our history we have willingly lined up and paid to be shocked and amazed. From magic shows and roller coasters to the circus and movies, our entertainment industries never seem to run out of audiences. Our propensity to engage with the new isn’t just confined to entertainment. Think back to the large technological expositions around the turn of the twentieth century that displayed the cutting edge of invention and visions for the future and attracted millions of visitors. Or, going further back, think of the pilgrimages that people made to see new architectural wonders often captured in churches and cathedrals in a time when travel was difficult.

Mlodinow contends these types of actions display a quality “that makes us human…our ability and desire to adapt, to explore, and to generate new ideas.” Part of the reason that novelty attracts us is that we get a hit of feel-good dopamine when we are confronted with something new (and non-threatening). Thus, in terms of our evolutionary history, our tendency to explore and learn was rewarded with a boost of pleasure, which then led to more exploration.

He is careful to explain that exploring doesn’t necessarily mean signing up to go to Mars. We explore when we try something new. “When you socialize with strangers, you are exploring the possibility of new relationships.…When you go on a job interview even though you are employed, you are exploring a new career move.”

The relation of exploration to elasticity is that exploration requires elastic thinking. Exploration, by definition, is venturing into parts unknown where we might be confronted with any manner of new and novel experiences. It’s hard to logically analyze something for which you have no knowledge or experience. It is this attraction to novelty that contributed to our ability to think elastically.

The Value of Emotions in Decision-Making

You can’t make a decision without tapping into your emotions.

Mlodinow suggests that “we tend to praise analytical thought as being objective, untinged by the distortions of human feelings, and therefore tending towards accuracy. But though many praise analytical thought for its detachment from emotion, one could also criticize it as not being inspired by emotion, as elastic thinking is.”

He tells the story of EVR, a man who had brain surgery to remove a benign tumor. After the surgery, EVR couldn’t make decisions. He passed IQ tests and tests about current affairs and ethics. But his life slowly fell apart because he couldn’t make a decision.

“In hindsight, the problem in diagnosing EVR was that all the exams were focused on his capability for analytical thinking. They revealed nothing wrong because his knowledge and logical reasoning skills were intact. His deficit would have been more apparent had they given him a test of elastic thinking—or watched him eat a brownie, or kicked him in the shin, or probed his emotions in some other manner.”

EVR had his orbitofrontal cortex removed—a big part of the brain’s reward system. According to Mlodinow, “Without it, EVR could not experience conscious pleasure. That left him with no motivation to make choices or to formulate and attempt to achieve goals. And that explains why decisions such as where to eat caused him problems: We make such decisions based on our goals, such as enjoying the food or the atmosphere, and he had no goals.”

Our ability to feel emotions is therefore a large and valuable component of our biological decision-making process. As Mlodinow explains, “Evolution endowed us with emotions like pleasure and fear in order that we may evaluate the positive or negative implications of circumstances and events.” Without emotion, we have no motivation to make decisions. What is new would have the same effect as what is old. This state of affairs would not be terribly useful for responding to change. Although we are attracted to novelty, not everything new is good. It is our emotional capabilities that can help us navigate whether the change is positive and determine how we can best deal with it.

Mlodinow contends that “emotions are an integral ingredient in our ability to face the challenges of our environment.” Our inclination to novelty can be exploited, however, and today we have to face and address the multiple drains on our emotions and thus our cognitive abilities. Chronic distractions that manipulate our emotional responses require energy to address, leaving us emotionally spent. This leaves us with less emotional energy to process new experiences and information, leaving us with an unclear picture of what might benefit us and what we should run away from.

Frozen Thoughts

Mlodinow explains that “frozen thinking” occurs when you have a fixed orientation that determines the way you frame or approach a problem.

Frozen thinking most likely occurs when you are an expert in your field. Mlodinow argues that “it is ironic that frozen thinking is a particular risk if you are an expert at something. When you are an expert, your deep knowledge is obviously of great value in facing the usual challenges of your profession, but your immersion in that body of conventional wisdom can impede you from creating or accepting new ideas, and hamper you when confronted with novelty and change.”

When you cling to the idea that the way things are is the way they always are going to be, you close off your brain from noticing new opportunities. In most jobs, this might translate into missed opportunities or an inability to find solutions under changing parameters. But there are some professions where the consequences can be significantly more dire. For instance, as Mlodinow discusses, if you’re a doctor, frozen thinking can lead to major errors in diagnosis.

Frozen thinking is incompatible with elastic thinking. So if you want to make sure you aren’t just regurgitating more of the same while the world evolves around you, augment your elastic thinking.

The ‘How’ of Elastic Thinking

Our brains are amazing. In order to tap into our innate elastic thinking abilities, we really just have to get out of our own way and stop trying to force a particular thinking process.

“The default network governs our interior mental life—the dialogue we have with ourselves, both consciously and subconsciously. Kicking into gear when we turn away from the barrage of sensory input produced by the outside world, it looks toward our inner selves. When that happens, the neural networks of our elastic thought can rummage around the huge database of knowledge and memories and feelings that is stored in the brain, combining concepts that we normally would not recognize. That’s why resting, daydreaming, and other quiet activities such as taking a walk can be powerful ways to generate ideas.”

Mlodinow emphasizes that elastic thinking will happen when we give ourselves quiet space to let the brain do its thing.

“The associative processes of elastic thinking do not thrive when the conscious mind is in a focused state. A relaxed mind explores novel ideas; an occupied mind searches for the most familiar ideas, which are usually the least interesting. Unfortunately, as our default networks are sidelined more and more, we have less unfocused time for our extended internal dialogue to proceed. As a result, we have diminished opportunity to string together those random associations that lead to new ideas and realizations.”

Here are some suggestions for how to develop elastic thinking:

  • Cultivate a “beginner’s mind” by questioning situations as if you have no experience in them.
  • Introduce discord by pursuing relationships and ideas that challenge your beliefs.
  • Recognize the value of diversity.
  • Generate lots of ideas and don’t be bothered that most of them will be bad.
  • Develop a positive mood.
  • Relax when you see yourself becoming overly analytical.

The main lesson is that fruitful elastic thinking doesn’t need be directed. Like children and unstructured play, sometimes we have to give our brains the opportunity to just be. We also have to be willing to stop distracting ourselves all the time. Often it seems that we are afraid of our own thoughts, or we assume that to be quiet is to be bored, so we search for distractions that keep our brain occupied. To encourage elastic thinking in our society, we have to wean ourselves away from the constant stimuli provided by screens.

Mlodinow explains that you can prime your brain for insights by cultivating the kind of mindset that generates them. Don’t force your thinking or apply an analytical approach to the situation. “The challenge of insight is the analogous issue of freeing yourself from narrow, conventional thinking.”

When it comes to developing and exploring the possibilities of elastic thinking, it is perhaps best to remember that, as Mlodinow writes, “the thought processes we use to create what are hailed as great masterpieces of art and science are not fundamentally different from those we use to create our failures.”