(2023-03-19) Cohen Navigating The Unpredictability Of Everything

Jason Cohen: Navigating the unpredictability of everything. We dramatically, repeatedly fail to predict the future. Does that mean “strategy” is senseless? No, it means you need these techniques to navigate a volatile world. (business strategy, VUCA)

Predicting markets

Analysts at Goldman Sachs

how accurately did they predict economic metrics within their area of expertise? They got it very wrong, for 25 years, often not even directionally correct

Predicting sales

sales forecasts for new drugs made by analysts at brokerage firms

Almost two-thirds of the estimates missed the peak revenue amount by 40 percent or more. Further, forecasts for follow-on drugs were no better than the first launches within a therapeutic class.

Predicting winners

Chess Grandmasters

they guess who is going to win the 85th annual Tata Steel tournament

—an 18-year-old junior player rated more than 100 Elo points lower than Carlsen (an enormous gap)—was given such a small sliver of a chance at the start that it’s hard to even read the number. He lead the tournament standings until the very last game. He also beat Carlsen in round 5.
And Giri was never given more than a 30% chance; usually 10% or less. He won the entire thing.

The same thing happened during the last FIFA World Cup.

Predicting product

Stewart Butterfield always wanted to make a game. So, in 2002, he did:

It failed, but it had some interesting features

they rewrote the Flash application as a regular website, and Flickr was born

Now that he had money in his pocket, he was free to go back and do what he always wanted to do, which was to make a game. So, in 2009, he did:

once again it was a failure, and shut down. But once again there was a piece of the game that people really liked, and once again it was the chat system. Butterfield pivoted the company with a new mission, and a new name that belied the mission: SLACK.com, the Searchable Log of All Conversation and Knowledge.

Butterfield was certain that merely “building yet another chat system” was a bad strategy, whereas “transforming communications” was a good strategy:

Once again, great theory, great mission, great strategy… and it didn’t work. Slack was, and is, yet another chat system.

Fortunately for him, Butterfield was also wrong that “just chat” wouldn’t sell very well. Slack was one of the fastest-growing companies in history:

The Solution

The Slack and WhatsApp stories of unpredictable success have at least two things in common:

They had a strategy

They went where the customers took them—if not a game, then sharing images; if not another game, then better chat

A strategy is required, even when it’s wrong.
A strategy gives you a direction. A direction creates something interesting.

A corollary: Making a decision and moving forward is often more effective than extended deliberation about the decision.

Making decisions and gaining experience is how to find the right answers, if the organization is introspective enough to also face the truth when it turns out the original strategy is incorrect.

Dispense with the idea that there is One True Solution to the puzzles, and that the way to get there is to gather enough information. While “iterate fast, learn fast” is good advice, it still doesn’t mean you’re iterating towards the One True Solution. It means you’re taking a path towards something, which will turn out to be an integration between your own creation and the swirling reality outside of you.

The customer (behavior) is always (directionally) right.

Customers are where you discover how to upgrade your strategy. Since you know your initial strategy is wrong, following customers’ lead is how you correct it.

Perhaps the most interesting signal is when the customer abuses your product to accomplish something else.

Our first product (Code Historian) let you visualize the history of your codebase, which seemed cool to me but few people paid for it:

But people abused it to enable peer review.

A new product was born (Code Collaborator) which within a few years represented 97% of the revenue of the company

sometimes strategies are correct right from the start, like it was with Google, LinkedIn, Amazon, Apple, and my latest company WP Engine1.

Although one reason WP Engine was correct at launch was because I used a system to discover what was important before building it.

Strategies that defeat unpredictability

it is possible for a strategy to side-step unpredictability through these mechanisms:

Build a moat

Have more than one way to succeed

examples are given in Nassim Taleb’s concept of Antifragility

Leverage your assets

echoing into strategy-design from the SWOT of the 1970s to modern agile frameworks like the “Means” in Effectuation. (effectual reasoning)

Intentionally reactive

e.g. building in public; the OODA loop; Iterative Hypothesis Testing ((2022-09-27) Cohen The Iterative-Hypothesis Customer Development Method); Continuous Discovery, Continuous Delivery

Hedged bets

The catch: You’ve reduced your maximum upside

Multiple vendors for same service3

Multiple brands

Multiple simultaneous solutions.

Redundant systems.

Disrupt thyself.

Extreme novelty

That upside does need to be immense for the risk to be rational. If it is, this a strategy for trading into a better set of uncertainties.

Form coalitions

Price-collusion

Peace treaties

Open source projects

Industry standards

Expand the scope of prediction

mapping possible futures can be illuminating:

Plotting possibilities that you believe are improbable, helps you recognize that perhaps they’re not quite as improbable, helps you think of solutions that mitigate plausible challenges5, and help you recognize if an “improbable” thing is in fact happening.

pre-mortem

Stay simple (simplest thing)

Complexity breeds unpredictability.

The inverse is that simplicity is predictable. While not strictly true, is it true that simple things can be more predictable... A simple product, with a simple value proposition, in a simple market, has fewer dependencies that require prediction, and thus are more likely to succeed. (rule of three)

Bet on what will not change