Wednesday, June 18, 2014

The mistake of consistency

I finally got around to watching Ben Horowitz on Charlie Rose last night discussing his book The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers. It was a great interview, and one of my favorite parts of it was when Charlie Rose asked Horowitz about the most common mistake start-ups make, where he responded:
There are so many mistakes…I think probably the most common mistake is trying to be consistent. What happens is you get an idea, you sell people on the idea—investors, the employees—and you get into it and the idea turns out to be wrong. But you want to be consistent and you hold onto it longer than you should…It’s better to be right than consistent. And that’s a very hard thing to learn, particularly early in life.
This also reminded me of a recent Scott Adams blog post, “The Pivot”:
I've been spending a lot of time in Silicon Valley for my day job at CalendarTree.  I feel like an embedded journalist. You might be interested in some of the things I've discovered. 
The most fascinating phenomenon in the start-up world is called the pivot. That word has been used in every meeting I've attended. There's more to it than you think. 
A pivot is when a start-up quickly changes from one product to another or from one business model to another. The valley is full of stories about companies that started with a lame idea and hit it big after a pivot. Most start-ups in the valley are software-based, so pivots are both practical and economical. 
The pivot used to be the exception. For example, a company starts out selling PEZ dispensers online and later pivots to become eBay. You didn't hear about all of the companies that failed so the pivot stories probably sounded more prevalent than they were. It's similar to how a story of one shark attack makes you think there's a Great White under every surfboard. The human brain assumes that whatever it hears most frequently must be the best reflection of reality.
The valley attracts some of the smartest humans on Earth, and each of those humans, being otherwise normal, probably assumed they could use their talent, brains, and hard work to achieve specific business goals, such as building product X and selling the company to Google for a billion dollars. 
And then they find out that success in the start-up realm is mostly luck. They discover this by trying great ideas coupled with great execution and failing. And they further discover it by observing unexpected successes at other start-ups. Success simply can't be predicted to any level of statistical comfort. 
Smart observers in the valley look for the "tell" that an early stage start-up will be a winner, but none can be found. Oh, sure, the team needs to be smart, talented, and willing to work long hours. But nearly every start-up has that going for it. Most have great ideas as well. None of it predicts success.
So imagine if you will, some of the smartest, most rational humans the world has ever created, wallowing around in the absurdity of Silicon Valley, where success is mostly based on luck. How does one feel good about that? And what is the solution? 
Answer: You institutionalize the pivot.
In other words, you move from a goal-oriented approach to a systems-oriented approach. The system involves assembling a team around a starting idea and then pivoting until something lucky happens. No one pretends to know where it will all end up.
As many that read this blog are aware, Commitment and Consistency was one of Robert Cialdini’s Weapons of Influence in his book Influence: The Psychology of Persuasion. It is also why many investors won’t talk about their stock holdings or ideas. They are too afraid of the subconscious influence on their decision making. As Cialdini wrote:
To understand why consistency is so powerful a motive, it is import ant to recognize that in most circumstances consistency is valued and adaptive. Inconsistency is commonly thought to be an undesirable personality trait. The person whose beliefs, words, and deeds don’t match may be seen as indecisive, confused, two-faced, or even mentally ill. On the other side, a high degree of consistency is normally associated with personal and intellectual strength. It is at the heart of logic, rationality, stability, and honesty. A quote attributed to the great British chemist Michael Faraday suggests the extent to which being consistent is approved—sometimes more than being right. When asked after a lecture if he meant to imply that a hated academic rival was always wrong, Faraday glowered at the questioner and replied, “He’s not that consistent.” 
Certainly, then, good personal consistency is highly valued in our culture. And well it should be. It provides us with a reasonable and gainful orientation to the world. Most of the time we will be better off if our approach to things is well laced with consistency. Without it our lives would be difficult, erratic, and disjointed. 
But because it is so typically in our best interests to be consistent, we easily fall into the habit of being automatically so, even in situations where it is not the sensible way to be. When it occurs unthinkingly, consistency can be disastrous.
And finally, here’s a link to the 10:19 mark of Charlie Munger’s original “The Psychology of Human Misjudgment” speech where he discusses commitment and consistency.