#18 - What Makes People Tick?
What Makes People Tick? | Predictably Irrational | The Power of Framing | Lessons from Investing in 483 Companies
This week’s newsletter, one after a long break, evolves around one fundamental question: What makes people tick? Recently, I got a chance to get "back to school" and take the elective course CUSTOMER INSIGHT with Professor Ziv Carmon at INSEAD. The course was a revelation, a deep dive into the behavioural economics - the science of how people actually make decisions. We are all far less rational than we tend to believe. Understanding the predictable nature of human irrationality - our inherent shortcomings and biases - is at the core of influence and can have far-reaching implications on life, business and society.
Book Recommendation: Predictably Irrational
If you have considered yourself a rational decision-maker, this book will make you think twice. Grounded in the behavioural economics, "Predictably Irrational" by Dan Ariely attempts to answer the fundamental question: What makes people tick? Each chapter describes a force that influences our irrational behaviour - in repeatable, predictable patterns. It invites the reader to think beyond the experiments and stories described in the book and see how the understanding of our irrationality can be used for better products, policies and decision-making. A must-read.
New Article: The Power of Framing
Have you ever thought how a seemingly inconsequential choice of words can influence our decisions? Meaning is not only the objective reality, but also the frames through which we look at it, the stories we tell ourselves. The power of framing is huge. In this article, I am looking at five areas where the framing can have dramatic effects: behavioural change, failure, success, problem-solving and people engagement. Discover the 5 framing effects.
One of the known decision-making biases is anchoring. Our first decisions tend to resonate over a long sequence of decisions. That’s why our first career and hiring decisions are disproportionately important. The podcast episode I would like to recommend this week offers a brilliant take on these ideas.
Podcast Recommendation: Invest Like the Best - Lessons from Investing in 483 Companies
Recruiting is way underestimated precisely because in an early company, people replicate themselves. So because people tend to hire not so much in their own image, but with that own set of biases, all the initial people you hire will influence all the other hires.
… Going slower, spending an enormous amount of time, picking exceptional people that are deeply synergetic, exceptional in and of themselves, and then have deep and meaningful synergies with the other team members, creates this thing, which is a sort of algebraic functional labor output. And I almost think that's how you have to think in the first year: “how do I find amazing standard on people that are also synergetic so that my net labor output of the firm is super high.”
And the biggest mistake I see, is when the panic to hire someone because they need sort of a job done. And so they just go for the earliest person. Another pernicious mistake, is the change in hiring rate based on the amount of capital available to the startup. So what you notice is hiring is not consistent on a quarter by quarter basis. It bulges after each capital raise – pre-seed, seed, A, and B – and then it's attenuated to almost to nothing in the six months before the next capital raise. So the sort of entrepreneur is like the proverbial sailor coming into port who spends all their money and then doesn't have any money months afterwards.
The “Invest Like the Best” podcast episode with the investor Charlie Songhurst is one of the best conversations I’ve heard recently. Besides the importance of going slow for the first hires, I also love the idea of stacking virtues and vices when we consider job change and hiring people.
One is stack ranking the virtues: (1) working with people you like; (2) working on amazing problems; and (3) having impact. And then the three vices: (1) power, (2) money; and (3) fame. You can't avoid them, but they have to be viewed separately. And it's really trying to get at the differences between them. There's no good answer, but there are definite good fit answers.
So, someone who's interested in power tends to be better at execution. Someone's more interested in money, tends to think more about some capital efficiency. I tend to avoid people interested in fame, but if you are doing something in showbiz, it would presumably be the number one criteria. If you think about the difference between impact, intellectual interest, working with people, you really get impression of where people are going to be happy and where they're not going to be happy.
You also start to understand why certain organizations do so well. So, SpaceX if you think about it, stacks high on all three. It's intellectually interesting. You're working with amazing people. You have huge utilitarian impacts in the world. Whereas if you're working at a FinTech, you're less likely to survive that utilitarian positive impact.
Listen to this podcast episode to explore these ideas, as well as the concept of founder market fit, start-up killers, organizational politics, 3 questions to evaluate early-stage startups, boring x complex matrix to select problems, and much much more… This intense conversation is worth every second of your time.
Stay safe, understand what makes people tick, and use this power for good reasons,
Arina