Little Bets - How Breakthrough Ideas Emerge from Small Discoveries

Little Bets - How Breakthrough Ideas Emerge from Small Discoveries

by Peter Sims

my Take

In my opinion this is a must read for stock market participants and / or entrepreneurs. This book also stresses upon  the fact that failures are inevitable and it is best if we learn from them. It also implies that we need to live with uncertainty.

Takeaways from the book

The routines of Chris Rock (one of the most popular comedian in the world) used in his world tours are outputs of his learning from thousands of small bets. These small bets are played out at a small comedy club near his house and most of them fail. As he performs these acts, he observes the crowd reaction and based on their reactions he develops his routine.

When Google was started , the aim was not grand and large as we see today. The founders were collaborators in Stanford digital library project, were trying to solve a very much smaller problem: how to prioritize library searches on-line.

Thomas Edison said "If I find ten thousand ways something won't work, I haven't failed. I am not discouraged, because every wrong attempt discarded is just one more step forward".

Little bets is based on the proposition that we can use a lot of little bets and certain creative methods to identify possibilities and build up to greater outcomes. We have discover, test and develop in a iterative manner.

Fundamental to this approach is that we need to:

• Experiment: Learn by doing. Fail quickly to learn fast. Prototype.
• Play: Have an atmosphere where creative ideas are not snuffed out or  prematurely judged.
• Immerse: Take time to get out into the world to gather fresh ideas and insights
• Define: Use insights gathered throughout the process to define specific problems and needs before solving them
• Reorient: Be flexible in pursuit of larger goals and make use of wins to pivot and chart the course to completion
• Iterate: Repeat, refine and test frequently

Big bets vs Small bets

Small bets enables us to focus on what we can afford to lose than make assumptions on how much we can expect to gain.

Failures are inevitable and instrumentals in the process of achieving goals. 

The Growth Mind-set

Michael Jordan did not start out as one of the greatest players in basketball. He exerted enormous effort to reach that level, and after attaining that level he worked even harder.In the first four NBA seasons Jordan's three-point range shooting was 18% and when he ended his 13 year career, the average was 33%.

Failing quickly to learn fast

In a world that prizes answers and solutions, protyping can be somewhat counterintuitive, placing the emphasis on doing to be able to think rather than thinking in order to do so. Discovery doesn't happen in a vaccum, which is why doing things, however imperfectly at first, opens us up creatively.

The Genius of Play

Creating an atmosphere that allows for playfulness and improvisation is one of the most effective ways to inspire the experimentation that leads to the best ideas and insights.

Problems are the new solutions

Creative people use constraints to limit their focus and isolate a set of problems that need to be solved

Questions are the new answers

One of the best ways to identify creative insights and develop ideas is to throw out the theory and experience things first-hand. We can't even know what questions to ask until we reach beyond what is already known through a true process of discovery: carefully exploring, observing, and listening to uncover what is hidden from the naked eye from the bottum up. In doing so, we must go deep, we must go wide, and we must stay focussed.

Learning a little from a lot

Innovators routinely networked with people who came from different backgrounds. It's a way to challenge one's assumptions and gain broader insight.

The Medici Effect, builds on major pillars of pscyhology research to demonstrate how diverse teams are more likely to be innovative.

Learning a lot from a little

Seeking out a small group of these active users with little bets is an astute way to tap into unique insights and desires.

The Roger S Curve

Diffusion is defined as the communication process by which a new idea or new product is accepted by the market, while the rate of diffusion is defined as the speed that the new idea spreads from one consumer to the next. Adoption, similar to diffusion, also deals with the psychological decision making processes of the individual, rather than those of an aggregate market.

Rogers showed that a diffusion process in a social system follows an S-Curve in which the adoption of a technology begins with slow change, is followed by rapid change and ends in slow change as the product matures or new technologies emerge

The people we essential want to learn and interact are the early adopters and the lead users

Small Wins

Small wins can either confirm that we're heading in the right direction or they can act as pivotpoints, telling us to change course.

Pixar was essentially a hardware company. The team executed some small animations and convinced the skeptical Steve Jobs through their small wins. Then Pixar transformed the animation / movie business.

Rokda: How Baniyas Do Business

Rokda: How Baniyas Do Business 

by Nikhil Inamdar

my Take

This book basically features stories of entrepreneurship of people who happen to belong to the same community. There is no "how to" in this book. Overall a good read for all those interested in entrepreneurship. The inspiring stories of the following people are featured

Neeraj Gupta - Meru Cabs

Radheshyam Agarwal and Radheshyam Goenka - Emami

Rohit Bansal - Snapdeal

R.K.Somany - Hindustan Sanitaryware and Industries

V.K. Bansal - Bansal Classes 

The Longer long tail

The Longer long tail by

Chris Anderson

my Take

The concept of Long Tail can be explained by first talking about the head. The head is essential "the hits" and the tail is made up of "misses". In the music industry the head consists of the hit songs and the tail of not so popular songs.

In the brick and mortar stores, the inventory is mostly made up of the head items. Due to the cost of physical storage the tail items are not stocked. The web has disrupted this business model. The online sites have the head and the tail items in their stock. The buyers now have unlimited choice of items to buy.

This book has revealed that the tail does not become zero for the e-tailers. Thus the title Longer Long Tail. Even the not so popular songs and books are bought by customers. Thus money can be made in the misses as well as the hits.

The e-tailers also have another advantage over the retail stores. The tail items can be appropriately be given to the buyers by using filters. In a retail store with a huge choice, it becomes difficult for a customer to narrow down her choice. But in a e-tailer with good filters, the customer can have easy access to their choice of product

The 80/20 Individual

The 80/20 Individual 

by Richard Koch

my Take

This book is a must read for entrepreneurs or want to be entrepreneurs. The book title may not actually reflect the link to entrepreneurship and also initially the book may be a bit slow but it definitely has some gems in it. Below are some of the points from the book which interested me.

Takeaways from the book

In 1897 Italian Economist Pareto noticed that a small minority of top earners had accounted for a large majority of the total wealth. The Pareto principle became widely known as 80/20 rule. This can be interpreted as 20% of the effort produces 80% of the result.

80/20 Individuals are those who concentrate on the 20% effort and create great value.

The Nine Essentials of 80/20 success

1.Use your most creative 20 percent

• Find the 20% of yourself that creates the 80% of your impact and happiness
• Nurture and grow the 20%
• Outsource the remaining 80% (partners or employees) 

2.Spawn and mutate great ideas

• Look for the minority of ideas that have already proven themselves to be highly successful (20%)
• Combine / Tweak the idea until it is successful for you

How to enlist and mutate great ideas

a. Circle your wagons: Define the domain where you'll use your great idea

b. Short-list the vital few ideas: 

c. Ferment a unique brew: Combine the ideas until you get a unique new business idea

d. Test, test, test

e. Confirm the economics of 80/20 enterprise

f. Discover the new 20 percent with the 20 percent

3. Find the vital few profit sources

"He that is everywhere is nowhere" - Thomas Fuller (1608-61)

• Changing the customer base - by targeting a smaller, but attractive segment of customers
• Changing the business formula - by improving the ways the new customer is served

Identify the vital 20% profit forces that give you the 80% of the profits

• People (Employees & partners)
• Customers 
• Products / Services

Vital few products and services

a. Think small : Honda bought smaller motorbikes to the US in 1960 when Harley Davidson and like dominated

b. Think big : Computers were meant for corporates when Steve Jobs wanted them to used at homes

c. Think upmarket : Ferraris , Rolex

d. Think mass market: Ford Model T, budget airlines and fast food chains

e. Provide more for less: Formule 1, a French hotel chain provides cheap small but clean hotel rooms with large, comfortable beds. The rooms are modular and mass manufactured, and you wont find lounges, room services or 24 hour reception, but the good sound insulation and low cost suits many business travellers just fine.

f. Use direct distribution channels : Dell

g. Focus on activities that have the highest ratio of value to cost: Cherry pick. Find sweet spots. Find activities that have the greatest customer appeal but require the least capital. Product design, branding, and direct selling are often sweet spots. Manufacturing, physical distribution, retailing through a fixed store network are often sour spots

4. Enlist Einstein

In 1916, Einstein argued in his general theory of relativity that time is not independent of space;rather, instead of three dimensions of space, there are four, time being the fourth.

Creating 80/20 time

Compress the delivery time to customers: For any business you are in or might enter, identify the 20% of activities that take 80% of the time and the 20% that comprise 80% of your total cost. Reduce the time taken for those activities.Check if costs are significantly lower or customer satisfaction higher. If so make the changes.

5. Hire great individuals

"If I have seen further,it is by standing on the shoulders of giants" - Sir Isaac Newton

20% of any peer group will typically achieve 80% of its results.

How to spot and hire great 80/20 Individuals

a. Understand the practical implication of the law of individual wealth creation: Hiring talent is much better deal than hiring mediocrity.

b. Exploit the theory of wealth/talent arbitrage: Talent is not difficult to spot. Grab it before your competitors do, and convert it into wealth-creating capacity as quickly and fully as possible.

Talent rarely gets paid fairly. At the very beginning of its career, talent is overpaid. But before long, if talent mutates into wealth-creating ability, it will be underpaid.

c. Appreciate the value of young talent

Hire the type of young talent that can become wealth generators quickly.

• Of these, hire the cheapest: if you look in the right places, you may be able to hire brilliant people for moderate pay.
• Favour the under confident and beware of the over confident.
• Hire to raise the bar in your department no matter how high it is already. Hire people whose potential ability to create wealth is greater than yours.

Lock in great talent by making them partners.

6. Use your current company to your advantage.

How to build your 80/20 business

a. Start a new venture

b. Finding a hybrid solution with the current employer

• Partnership
• Incubator deal

7. Exploit other firms

A new enterprise needs working capital, but should not need to invest in capital goods as there is already a glut of infrastructure and frozen capital. There are too many factories, too many machines within them, too many warehouses, too much retail spaces, even too many laboratories for research and development.

The essence of growth used to be physical-now it is intellectual.

How to exploit other firms

a. Identify the missing ingredients in missing markets: Mature companies often posses nine-tenths of the puzzle. They have brands, manufacturing assets, and access to markets, but they lack the imagination to generate growth. If you can find the small missing piece of the jigsaw, you'll be made

b. Adhere strictly to the 80/20 frugality principle: Only do the 20% of the work that produces 80% of the profit. Outsource the remaining 80% of the work.

c. Separate drones from star partners, temporary from permanent deals

d. Force birds of a different feather together: Individuals from your firm and the partners firm should work together

8. Secure capital

How to use capital

a. Use capital only when you can multiply it

b. Reduce your need for capital

c. Raise more capital than you need

d. Provide your own capital: 

Sources of capital ranked from cheapest to most expensive

• Capital made unnecessary by other firms (outsourcing)
• Suppliers and other creditors, and billing customers in advance (negative working capital)
• Own savings
• Capital from family and friends
• Bank debt
• Capital from existing employer
• Capital from alliances with other firms
• Public equity (stock market)
• Angel Equity
• Specialist industry sources of finances (e.g. insurance companies)
• Private equity
• Venture capital

e. Use the cheapest available sources of external capital

f.  Be obsessed with cash

g. Treat capital providers as valued partners

9. Make Zigzag progress

Finding the 20% of inputs that will yield 80% or more of results requires experimentation and insight.

The Zurich Axioms

The Zurich Axioms: The rules of risk and reward used by generations of Swiss bankers 

by Max Gunther

Max Gunther writes about the 12 major and 16 minor axioms handed down to him by his father, a swiss banker/speculator.

my Take

Though this book has less number of pages, it is packed with gems. Must read for anybody serious about investments or trading

Takeaways from the book

ON RISK 

1.Worry is not a sickness but a sign of health. If you are not worried, you are not risking enough.

Minor Axiom I : Always play for meaningful stakes.

Minor Axiom II : Resist the allure of diversification.

ON GREED

2 . Always take your profit too soon.

Minor Axiom III : Decide in advance what gain you want from a venture, and when you get it, get out.

ON HOPE

3. When the ship starts to sink, don't pray. Jump.

Minor Axiom IV : Accept small losses cheerfully as a fact of life. Expect to experience several while  awaiting a large gain.

ON FORECAST

4. Human behavior cannot be predicted. Distrust anyone who claims to know the future, however dimly.

ON PATTERNS

5. Chaos is not dangerous until it begins to look orderly.

Minor Axiom V : Beware the Historian's Trap.

Minor Axiom VI : Beware the Chartist's Illusion.

Minor Axiom VII : Beware the Correlation and Causality Delusions.

Minor Axiom VIII : Beware the Gambler's Fallacy.

ON MOBILITY

6. Avoid putting down roots. They impede motion.

Minor Axiom IX : Do not become trapped in a souring venture because of sentiments like loyalty and nostalgia.

Minor Axiom X : Never hesitate to abandon a venture if something more attractive comes into view.

ON INTUITION

7. A hunch can be trusted if it can be explained.

Minor Axiom XI : Never confuse a hunch with a hope.

ON RELIGION AND THE OCCULT

8. It is unlikely that God's plan for the universe includes making you rich.

Minor Axiom XII : If astrology worked, all astrologers would be rich.

Minor Axiom XIII : A superstition need not be exorcised. It can be enjoyed, provided it is kept in its place.

ON OPTIMISM AND PESSIMISM

9. Optimism means expecting the best, but confidence means knowing how to handle the worst. Never make a move if you are merely optimistic.

ON CONSENSUS

10. Disregard the majority opinion as it is probably wrong.

Minor Axiom XIV : Never follow speculative fads. Often, the best time to buy something is when nobody else wants it.

ON STUBBORNNESS

11. If it doesn't pay off the first time, forget it.

Minor Axiom XV : Never try to save a bad investment by "averaging down."

ON PLANNING

12. Long-range plans engender the dangerous belief that the future is under control. It is important never to take your own or other people's long-range plans seriously.

Minor Axiom XVI : Shun long-term investments.