Ben Perreira

My head's dropbox.

Month: April, 2012

Perspectives on Probability

The gentleman I worked for a few years ago whom I referenced in my very first post of this blog once told me, “You learn a lot more about someone in one bad day than in 1000 good days.”

NNT refers to a similar concept in The Black Swan, through a graph that show the life of a turkey abruptly ending on day 1000 (presumably a couple weeks before Thanksgiving).

The underlying logic behind a focus on prediction through routine, though flawed, is tempting: something has happened in the past so consistently is extremely likely to happen again to the point that planning for contingencies would be a burden.

In controlled circumstances, it’s a different story.

I had a conversation with a friend about blackjack the other night. I am not a blackjack player so I could be wrong here, but our discussion hinged on how other players in the game affect your odds based on when they hit or stay. My friend held that he could justifiably blame a fellow player for being a poor player and hitting at the wrong time if it meant my friend got the “wrong” card by playing the right way. I tried my best to understand the logic, but it didn’t add up.

The other player’s decision to hit or stay would certainly affect my friend’s chances in that one hand, but by definition of randomness and probability in cards, the other player could not affect him disproportionately toward a positive or negative result in the long run. Thus, if he gets mad at the guy for hitting at the wrong time and it causes him to lose, he better give the same guy a tip when he hits at the wrong time and causes my friend to win big.

The point: we like to use statistics and probability, but only when they work in our favor. Probabilities in our favor reinforce laziness, while probabilities not in our favor can be written off as anomalous.

For example, let’s say the odds of meeting one’s dream mate today are 1/1000, the same odds as a good person turning bad from the example above. We are more likely to see the odds of a good person turning bad as negligent than we are to see the low odds of meeting a dream mate as hopelessly low.

Do our minds trick us into being optimistic as a defense mechanism? Or are some other forces at work here?

Advertisements

Moderativism

I never dared to be radical when young for fear it would make me conservative when old. – Robert Frost

As hard as it can be to make a decision, once that decision is made it has tremendous inertia. Americans are told to register to vote at age 18, at which point we are prompted choose a political affiliation. Many of us choose to support the same political party our parents support.

Others have slightly wider world views and choose on their own. Some choose to waffle and register as independent (shockingly, I am one of these people).

As soon as these anchors are dropped they become permanent parts of our personal political ecosystems. We become republicans, democrats, liberals, libertarians, socialists or nationalists ’til death do us part.

Or if you choose to follow Robert Frost’s cue, you simply make decisions as they come along. Nothing wrong with adaptability.

So you got your MBA, huh?

This is a post I wrote for another blog a little over a year ago. I recently saw a similarly ridiculous comment and it reminded me of this. The good thing for those of us getting MBAs – at least people are still perceiving the degree’s value…

An MBA can be a valuable piece of currency. That is one reason I decided to pursue one, in addition to the education and mountain of student loan debt I would accrue along the way.

The worlds of LinkedIn and Twitter can offer creative interpretations of what an MBA is. One LinkedIn user in my network claimed that he got his “MBA” (his quotes) while working on the road as a tour and team manager for a skateboard company. A guy I follow on Twitter an respect for what he has done in the business world recently tweeted that he “got (his) ‘MBA’ last night from knowledge dropped from” the founder of a large company he works for. (I know he doesn’t read this, but I’ll protect his identity anyway). Granted, the founder of his company deserves a ton of props because he has built a successful, wildly profitable company that markets its products better than almost anyone in the world. I would love to have a chat too.

The issue is the idea that a 45 minute chat constitutes an MBA. An MBA is not just some inside information. It is a series of seminars with different business professionals from different backgrounds. It takes years to complete, full dedication, and [edit: well!] over a thousand hours of work when it’s all said and done. It is meant to prepare one for any business situation that may arise, not unlike how a law degree should prepare one for any legal situation. You don’t hear people claiming they got a JD after having coffee with Ruth Bader Ginsburg.

Please stop this, people. No doubt you have had experiences that are probably much more valuable than what is offered in business school, but you don’t have an MBA. If you mean it as a joke it’s a dumb one, and the joke is on you.

Elitist rant ends here.

Future Regression

Oftentimes economists, through their training in statistics, use multiple regression to determine correlations between various variables. This has some utility in mature, established fields, but little utility elsewhere. Financial analysts use regression (technically it’s cousins variance and co-variance) to determine beta, or firm’s market risk. Beta has been consistently proven close to useless in predicting a firm’s risk relative to the market, in part because it ignores the investor’s true desires – increase upside risk and decrease downside risk. Beta treats all risk the same. So does regression.

But what if there was a type of regression that allowed us to look forward?

Daniel Kahneman, to whom I’ve referred for his book Thinking, Fast and Slow, has a great technique. I don’t remember Dr. Kahneman assigning a name for it, so I’ll give it the paradoxical name “future regression.”

Future regression works as follows:

Your team is looking to make a move in the next few months – an investment, acquisition, sale, whatever. Gather the top 5-10 decision makers with different backgrounds and tell them to put themselves in the same seat in precisely twelve months. Next, they must imagine that the project has failed and they need to write down all the possible reasons why. This technique predicts that you will see a wide variety of possibilities that remain latent when the team has already committed to move forward, offering a more accurate glimpse into the future.

Why is this superior to multiple regression? It may not always be, but it can be quite difficult to predict the next bends of a country road by staring into the rear-view mirror. Besides, who better to predict the future than those who know the area best?

The Next Google?

I have this crazy idea that a new Google is coming. What would you get if you created a hub for almost all activity on the internet? In 2005 this was Google. In 2012, this is Facebook.

Yes, Facebook could very well be the next Google. Here’s why:

  • Google is trying to be like Facebook. Google+ is Google’s attempt to reverse engineer Facebook. Google+ is to social networking what Budweiser’s Shock Top is to true craft beer – astroturf. Forcing users to accept new features isn’t something Google has been (or will be) successful at doing. Only Facebook can do that. If Google is trying to be Facebook, something nebulous and at the very least more difficult to scale than AdWords, there is a ton of untapped value awaiting the Zuck’s company.
  • Facebook sucks you in and keeps you in. From emerging apps like Branch Out to possible future partnerships with VEVO, Facebook is doing everything it can to keep us on Facebook.com. The Facebook search bar already pulls results from a user’s friends plus the web through its partnership with Bing. Who says this feature will not become even more robust in the near future?
  • Filter bubbles. All of our search results are tailored to our individual behaviors already. As long of Facebook users don’t care that Google, Facebook and any other website worth its weight in VC cash filters search results, the world will continue to turn. As someone recently said (and I wish I could remember who), “If the internet wasn’t tailored to our individual interests, it would look like the USA Today.”
  • Mobile. Facebook’s mobile apps for iPhone, Android and iPad are among the most popular for each platform. You can be sure their Windows Phone app is going to be wildly popular as well. Facebook’s recent acquisition of Instagram means the company is serious about mobile (of course), but more importantly means Google will be cut out of a large amount of mobile traffic with search directly through Facebook with its new user/image bank (IG) adding to the query database.
  • Privacy. Google likely spends hundreds of millions of dollars per year on lawyers to defend privacy complaints. Facebook has been proactive with privacy issues, plus it doesn’t matter as much because people love it like…
  • Crack. People are addicted to Facebook. This comic from The Oatmeal sums it up well. A week ago people were complaining that Facebook’s acquisition of Instagram would ruin Instagram, or both (??). Today, with a mountain of acquisition documents still being unloaded onto the desks of SEC officials, few remember who bought who, and for how much. More filters and sharing capabilities? Yes, please!

Sure, $100B is a rather large valuation, but the kids in Palo Alto are onto something. I just hope they get rid of the Yahoo and Washington Post reader apps. In the meantime, I’m staying tuned.

At Least You’re Trying

Brilliant clip from Monty Python and The Holy Grail. It’s a similar notion as my previous post on learning through failure.

You Can’t Hurry Love

Just like mama said (then The Supremes, then Phil Collins), you can’t hurry love.

A professor I had for “Arbitration and Mediation” used to say this all the time in reference to negotiating agreements. He also kept telling the class that he had been a mediator for 35 years and should know how this works. Emotions have to sizzle then simmer and numbers/ figures have to marinate before one can enjoy the final, mutually satisfactory agreement. Only after this process, this dance, does the final product seem to be win-win.

Whether assembling a transaction, settling a dispute, or looking the right suit for a late spring trip to Europe (as I currently am), you can’t hurry love. 

The Competition Conundrum

In accounting, an asset has to be balanced to equal the liability or equity one gives up to get that asset. The same could be said for competitors.

Competitors (similar businesses, friends at a bar when trying to meet members of the desired sex, other surfers in the water, etc.) are certainly a liability. They get in the way of most easily getting what you want. The end up costing us more in the beginning. However, they also offer lessons. They force us to be better and innovate.

In the case of business, this has the potential to benefit society. Some monopolies or pseudo-monopolies have contributed to the greater good – 1920’s AT&T is an example from “The Master Switch” – though the AT&T of today has had a significant impact on the slightly-more-competitive mobile network market. (That is, of course, notwithstanding its failed acquisition of T-Mobile and questionable cellular reception.)

So the question is, is it better to be in a competitive market for say, social photo sharing, or a monopolized one? Instagram‘s shareholders would probably offer a resounding “competitive!”

Simplify

Someone much wiser and more clever than myself once said that “good design” isn’t including everything that can be included, it is removing everything that is unnecessary.

Yvon Chouinard includes an exchange in “Let My People Go Surfing” that goes:

Simplify. Simplify. – Speaker 1

One ‘simplify’ would have sufficed. – Speaker 2

This is not to be confused with being simplistic; the power comes in taking something very complex and making it palatable without losing its essence.

Think of giving someone directions from the airport to your house (no Google Maps). You could give all the details (“pass an In-N-Out on the right, look for the ocean on your left, go 3.5 miles on this street, watch for cars coming out of that alley, stay right until you get to this intersection, then stay left, etc.”) or you could be simplistic (“go north”).

Neither of these instructions will work. The former gives too much information to retain without writing something down, and the latter should be reserved for “friends” you’re trying to lose.

Find the balance. And simplify.

Selling Yourself

I had the pleasure of enjoying some aperitifs with two talented friends and three lovely ladies last night. One of the ladies and I got to talking about selling things versus selling oneself. She has a successful marketing company and should know a thing or two about selling things and herself. We agreed that there is a big difference. 

People will argue otherwise, that selling is a simple practice. This is very true. Selling requires knowledge the needs of the prospective buyer’s needs. Why not just figure out the other person’s needs and adjust one’s sales pitch to suit their needs? There are two related differences: weaknesses and identity. 

Sure, I know the weaknesses of Product X that I’m trying to sell, but it isn’t decidedly me. I am selling Product X to a customer who understands (or will soon understand, because I am good at selling it) its place in the marketplace because of examples, parallels and precedent. Product Ben’s comparables are fuzzier to define.

When I sell myself I am 100% accountable for the failure of the Product Ben. I am aware of my product’s weaknesses and will err on the side of safety by underselling in an effort to manage expectations. Product X’s weakness can be easily vetted by the market. My weaknesses (often strengths in different contexts, for example “ambition” can be a weakness when you’re an assistant, but it’s a strength for a rising star) are subject to human vetting. These are much easier to see from the outside. The woman above relied on friends for a concise elevator pitch that she was certainly capable of crafting were the product not herself.

Of course, we all try to sell ourselves and some are quite good. The central challenge is getting to the bottom of what Product Ben actually represents. As my friends and I once wrote into a script for a 12th grade English class movie, “People are like Reese’s Peanut Butter Cups. We show other people the shiny foil wrapper, but they really just want to get to the chocolately-peanut-buttery treat inside.” Poignant, ’twas.