Two Different Ways to Lose $1.6B

I admit it: it’s unlikely that you’re trying to figure out different ways to lose $1.6B. After all, you have to have a lot of money to lose that much money in the first place. Billions.

I ran across two unrelated stories in the retail space where that sum was central, so I thought I’d call your attention to them. At the very least, there’s a symmetry and a lesson in these stories.


The first story is here. It talks about how physical retailers are getting fleeced by shoplifters – to the tune of about $30B.  So where’s the $1.6B number?  Read on:

“Oh, and just in case you’re sitting there shedding zero tears for the Targets of the world — this affects all of us.

Since large-scale shoplifting can drive up prices for both the manufacturer and retailer, the US loses roughly $1.6B in sales tax revenue per year (money that could be spent on parks and schools) thanks to ORC (Organize Retail Crime).”

This story was in my head when I read an amazing statistic about Amazon.

The Power of Applied Hope

If you read my About Me page, you will see that it ends with this:  “Finally, I am an optimist.  It’s an exciting time to be alive”.

I thought that now would be the perfect time to revisit optimism – not just as a way of viewing external events and avoiding despair, but as a way to impact events.  Let’s start with three well-known characters:  Bill Gates, Melinda Gates, and Warren Buffet.

Screen Shot 2017-02-17 at 11.55.08 AM

Last week, the Gates Foundation released their annual letter. Since Warren Buffet gave the bulk of his wealth – $30B or so – to the Gates Foundation in 2006, Bill and Melinda addressed this year’s letter directly to Warren. I recommend you read through the letter in its entirety.

In one part of the letter they touch upon why they remain optimistic about many of the major health challenges facing the world.  This optimism runs contrary to rampant pessimism. For instance the statistic below:

Screen Shot 2017-02-17 at 11.15.43 AM

Bill puts it well here:

“One of my favorite books is Steven Pinker’s  The Better Angels of Our Nature. It shows how violence has dropped dramatically over time. That’s startling news to people, because they tend to think things are not improving as much as they are. Actually, in significant ways, the world is a better place to live than it has ever been. Global poverty is going down, childhood deaths are dropping, literacy is rising, the status of women and minorities around the world is improving.”

Optimism (and pessimism) perpetuates itself. While the political world has become practiced in leveraging fear, that approach doesn’t work as well in the private sector, where leaders create outcomes based upon the shared belief and passion of their teams.

Which leads me to a related point: the importance of active optimism, or “applied hope”.  Before I get into the provenance of this phrase, let me drop one last (telling) quote from the Gates letter, this line specifically from Melinda:

The Dangers of the Golden Story

In the past, I have written about the importance of storytelling. Companies often tell the same stories over and over to signal what is important to the company and why it exists. But I want to provide one bit of caution around something I call the “Golden Story”.


I have worked for a number of high-growth software companies – most of them private companies that were working against the odds every day, trying to secure more customers and new financing. One of the things we would be desperate for was some external validation that our product/market fit was on point. “Product/Market Fit” means that there was a 1) demonstrably large market with a particular problem, 2) that market was providing indicators that it was willing to spend money to address that problem, and 3) participants in the market had selected our product and used it to successfully address the problem.

Since a lot is riding on a young company proving product/market fit, we treated any story that validated our product like gold – and inevitably, we would hear such a story.  Perhaps a customer had a great outcome when they used our software exactly as designed, or maybe a major customer had licensed our technology at a high price. It’s natural to love stories like these and to re-tell them.

But in retrospect, sometimes these stories can be false signals, and false signals can lead to bad events. Here are some indicators that the Golden Story you’re telling is a false signal in disguise:

  1. The recurrence of the story is limited.  You keep telling the same story over and over. It is rarely supplanted by new versions.
  2. The sample size is minuscule. It’s one company out of a thousand. It’s one user out of a million. You make it seem bigger.
  3. You’re overly elated. It quiets your doubts, but if you’re honest, you’re pretty surprised.

Poker, Bifocals, and You

Every now and again I like to provide examples of cool things that are happening.  Without further ado, let’s dive in….

This might be my 3rd grade picture

This might be my 3rd grade picture

Say No to BifocalsThe reason people don’t usually see me with eyeglasses isn’t because I have perfect eyesight. It’s because I wear contact lenses made for the preposterously near-sighted. Lately however I’ve been wearing reading glasses in restaurants, my theory being that restaurants have recently decreased both their lighting and the font size used in their menu and receipts. It must be their fault, somehow. 
Researchers at the University of Utah have developed eyeglasses that can sense when you’re looking at something close or far and adjust the lens strength accordingly.  They do this with a little infrared sensor embedded in the bridge of the glasses to detect where your eye is focusing and the glasses can alter the lens correction within 14 milliseconds.
One potential advantage is that users will only need to change their settings as their prescriptions change.
The trick here is not so much the Big Discovery, but turning the innovation into a mass-market product. Despite my poor eyesight, I see this as inevitable.  
(Hat tip to The Hustle for the info, which you can read here).
Poker Players Fold. Software developed at Carnegie Mellon was able to recently trounce a group of world-class poker players at Texas Hold ‘EmIn the era of Watson/Jeopardy and Deep Blue/Chess victories, this might not pass as shocking news anymore.
But the big breakthrough here is that unlike chess, poker is a game where participants have imperfect information. You only know your hand – not the other person’s.  The resulting computing task is therefore more difficult. (Fun fact: the developers leveraged the game-theory work of Nobel laureate John Nash, he of the Beautiful Mind movie).
The speed of this breakthrough stunned even the experts. Said one scientist: “Such an event was prognosticated to be at least a decade away.”
(Hat tip to The Powersheet for the info).

Narrate Your Presentation!

How many times has this happened to you?

There’s a group of people in a conference room, and someone is presenting to that group on a plan that they are proposing.  You are not in that conference room. You are on the phone.

This is you on a conference call

This is you on a conference call

During the presentation, the presenter says things like this:

  • “As you can see, this number indicates that we should move these things right here over to this part of the operation.”
  • “Look at this number here!  Quite surprising!” 
  • “As you can from this area, we have some work to do.”

Meanwhile, you’re not exactly sure which slide they’re on.

I have been on the receiving end of these presentations throughout my career.  As a result, I’ve become pretty focused on doing the following.  For the sake of your presentation’s success, I recommend you try to adopt these same practices, if you don’t already.

Zume: Silicon, Sausage, and Pizza Automation

As we hear about automation changing the face of work, consider the future for the neighborhood pizza worker.

I'd also like a glass of Chianti with that...

I’d also like a glass of Chianti with that…

Zume Pizza, a startup in Mountain View, CA, is imagining a different future for how your pizza will be made and delivered.

According to this article, Zume is a pizza chain startup that is envisioning a future where machines and robotic arms press the dough, spread the sauce in “near perfect circles”, add the ingredients, and slide the pie into an 800 degree oven for the first few minutes of baking. The pie is then transferred to a delivery vehicle that will finish the baking process in on-board ovens on it’s way to your house – a baking process timed to complete exactly as the vehicle arrives at your location.

Suddenly I’m getting hungry….

As you might imagine, Zume currently spends far less on labor costs than Dominos or McDonalds. They are currently leveraging that lower cost basis to provide higher pay and full benefits to their fewer employees, but I suspect that sort of California idealism won’t last long as the model expands in the market and new competitors enter. In just the past few months McDonalds has increased their roll-out of automated ordering kiosks, which many (including McDonalds executives) say is a response to the recent efforts to increase the minimum wage to $15 in various cities.

Given the rise of driverless cars and trucks, I absolutely envision the day when we will order our pizzas using convenient mobile apps or voice assistants, get an alert when the truck is in front of our house, walk to the (driverless) truck to tap in the code that appeared with the alert, and get the boxed, piping hot pizza we ordered right there.

A Powerful Word to Inspire Action

I recently wrote two posts – one on the psychology dynamic duo of Tversky and Kahneman, as chronicled in Michael Lewis’s book The Undoing Project, the other on the power of being “disagreeable” in the sense of not needing social approval to embark on a worthwhile effort.   Today, I’d like to combine them with an interesting example.

In his book, Lewis talks about the eminent economist Richard Thaler and how he was energized when he first discovered Tversky and Kahneman’s research. To understand the context of the story below, you must understand that although Thaler may now be described as an “eminent economist” (and is enough of a big shot to appear with pop star Selena Gomez in the movie “The Big Short” – and let’s be honest, we don’t often see economists hanging out with international pop stars), but at the time of the story below he was not remotely “eminent”.

Richard Thaler's appearance, with Selena Gomez, in the movie "The Big Short"

Richard Thaler’s appearance, with Selena Gomez, in the movie “The Big Short”

In fact, he was clinging to a very precarious faculty position (a position that he had to beg for), had limited career prospects and a young family.  So he wasn’t a guy with a safety net should he take a risk.

He was doing research for a thesis on how much money people would need to be paid to accept a certain amount of risk in their profession. As he engaged in a number of experiments, he noticed that people’s responses to various risk questions were contradictory. He eventually discovered Tversky and Kahneman’s insights about the human mind and it’s tendency to play tricks on us, and he wondered about how psychological insights like these could impact the field of economics – particularly given how much certainty economists tended to exhibit regarding their research conclusions.

From Lewis’s book:

“He (Thaler) told his thesis advisor about his findings.  ‘Stop wasting your time with questionnaires and start doing real economics’ said his advisor.

Instead, Thaler began to keep a list.  On the list were a lot of irrational things people do that economists claim that they don’t do, because economists presume that people are rational.”

If I were to ask you to pick out the most important word in the story above, what would you say it is?

The Benefits of Being Disagreeable

What would you accomplish if you were more disagreeable?

The term “disagreeable” has all sorts of negative connotations.  Someone who we refer to as disagreeable is understood to be ill tempered and unpleasant.  But there is another way to look at the term – a more literal way.

Malcolm Gladwell, in his book David and Goliath, talks about the willingness to move ahead with an idea without “social approval”.  Here’s a recap of a recent talk he gave at a business school:

“Combined with a sense of openness and discipline, a willingness to “follow through even in the face of social disapproval” is critical. He illustrated this with the growth of IKEA in the 1950s, which persevered with an unlikely concept of unassembled “shipped flat” furniture from a then-unpopular lower-cost source of labor (Poland). It wasn’t just that Sweden was higher cost, but also that the furniture establishment rejected his disruptive model.” 

I want to share with you two examples of being disagreeable.  The first is about Rick Barry.  Gladwell did a great podcast on the topic of Rick Barry and his famous free throw style.


Rick was one of the great basketball players of all time.  He led the NCAA and the NBA in scoring during his career.  And over the course of his storied professional career he had a free-throw percentage of 89.3%.  The thing was, he shot his free throws “granny style”.

Rick figured out that the granny-style of throwing a ball was more consistent, and physiologically more natural, than the common method of shooting free throws.  Can you imagine the abuse Rick took throughout his career as he stood at the line and shot his free throws this way?  Check out this video:

Write Your Press Release First

There’s a saying that any creation is a second act, one which is preceded by the imagination.  Before we do anything, we conceive of it in our minds. It is this ability to visualize something that doesn’t yet exist that separates us from the animals (well, that and reality television).

In an earlier post, I wrote about something I did once that took “visualization” to an extreme.  We were a small company that was on the verge of establishing a company-defining partnership with a multi-national behemoth.  Early in the negotiations, I wrote a press release “announcing” the relationship and shared it within our company.

Writing a press release at that point seemed odd since we had months of conference calls and negotiations in front of us. The outcome of those negotiations was far from assured. But it didn’t take long before we all agreed on our “faux press release”, complete with nonexistent quotes from executives from both companies.  Even as I wrote it, I knew the release as written would never see the light of day, but it was one of the most powerful press releases I’ve been involved with.  Why?

It required that we visualize the outcome, or as Stephen Covey so brilliantly captured it, “begin with the end in mind”.  Just as important, but perhaps less appreciated, is how it focused our team on what a “win” would look like, and kept the team motivated as we passed through the inevitable crises and obstacles that arose during the negotiation.

So it was with pleasure when I read this week that it is common practice for developers at Amazon to do the exact same thing. Key quote from the article:

“Before Amazon developers write a single line of code, they have to write the hypothetical product’s press release and FAQ announcement. 

Amazon uses this “working backwards” approach because it forces the team to get the most difficult discussions out of the way early, Jassy says. They need to fully understand what the product’s value proposition will be and how it will be pitched to customers. If the team can’t come up with a compelling press release, the product probably isn’t worth making.”

An Ancient and Modern Blindspot

In an ever changing business environment where leaders are confronted with every sort of barrier to success – competition, limited resources, fire drills, regulation, and so forth – there is one huge barrier to our success which we are only in the earliest stages of understanding: our minds.

The explosion of social psychology insights has been a recent phenomenon. It was less than a hundred years ago when many psychology “experts” adhered to the concept a phrenology, where a person’s personality and character could be determined by evaluating the shape of the skull. To say that humanity has come a long way since then is an understatement.

Phrenology chart. Use with caution.

Phrenology chart. Use with caution.

Much of our insights over the past few decades have demonstrated what we humans are up against. Our brains have evolved a number of biases over the millennia and frankly, many of them were more useful for our distant relatives who had to fend off frequent attacks from wild animals, bad weather and local enemies.

The evolutionary distance between those relatives and ourselves is small. The fact that we spend more time answering email messages than our caveman forefathers shouldn’t kid us about how similarly we confront threats.

One of the differences however is the explosion of incoming information and associated uncertainty.

To help ourselves assert control in such the face of chaotic information overload, we humans consistently exhibit Confirmation Bias – the inclination to seek out and attach emphasis to information which confirm our previously held beliefs. A cousin of confirmation bias is “selective perception” – a similar habit of avoiding emotional discomfort by selecting only information friendly to prior viewpoints.

I’m always interested to hear stories with confirmation bias at play, and I recently ran across one that is a classic business blunder we might relate to. The key here is to not feel superior when you read this. These were smart people who were stuck in a confirmation loop that you may very well be in yourself right now.

The story came via the Fortune Power Sheet, and concerned a story that writer Geoff Colvin had written about Sears, which based upon recent announcements appears to be in a painful death spiral: