You can’t use results alone to tell you about a process. The best meal you’ve ever had can’t be recreated without the recipe, the ingredients, and a talented chef.
That brings us to a somewhat uncomfortable conclusion: we know what the results have been when we compare Jeff Bezos to Bernie Madoff, but at their beginnings, both were visionaries in their own respect. You can’t tell the meal from half of the ingredients and a snippet of the recipe.
How do we vet a process? If you, or anyone, can gather some momentum – even for bad reasons, you’ve got a process that’s working. So when does the good path and the bad path divide? How do we spot them in advance? How do we make sure we’re personally on the right path and not just being naive?
Lux Capital’s 100/0/100 rule has three steps. Step 1 says you have to put yourself out there with 100% arrogance. Step 2 says you have to have the complete intellectual humility to say that you have a 0% chance of being right all of the time. Step 3 says that if you are vigilantly persistent in putting yourself out there and staying humble, eventually you’ve got a 100% chance of being in the right place at the right time for something (NOT everything).
It’s true, you can’t separate Bezos from Madoff at Step 1. They both put themselves out there. Over the short term, stories beat smarts. Both knew how to weave a tale and draw a crowd.
Step 2 is where things change. Over the long term, cautious beats cute. If you don’t want to “get cute,” intellectual humility is your protection, but do we really think Madoff thought he was getting cute with his performance numbers? We need to introduce a new concept to examine this step: the mini-game and the meta-game.*
The mini-game looks easy in the sense that intuition and/or practice is required to be good/win. It’s checkers and chess. It’s birds knowing how to fly without ever reading a physics text book. It’s the alpha coyote on the edge of your property that is staring you down with cool confidence.
The meta-game is more complicated in that it combines all of the mini-games into a super-game. There’s the unknown (stuff nobody knows) and asymmetric information (stuff you know that I don’t). There are traps and bluffs and complete surprises. There’s a hunter hiding in the grass next to the pond where the migrating birds are stopping for a rest. There’s a protective farmer with a shotgun who needs the coyote to stand still to take a clear shot.
Let’s focus on the alpha coyote. He excels at the mini-game of group leadership, territory dominance, etc. When he stares you down at the property line, he’s still playing the alpha role in the mini-game. He has 100% confidence. “I’m strong with sharp teeth.” How do you already know his process is bad?
It’s because you see the meta-game. You see that if you were him, it’d be better to assume all humans are armed. You’d say avoidance is a pretty solid strategy. Avoidance means you have 0% confidence in your ability to assess the property line stare-off situation given the magnitude of the potential risk. Cautious beats cute. To survive in the meta-game, humility is the ultimate risk control.
The alpha coyote is, as the British expression goes, “too clever by half.” The birds know all about avoidance, and even Step 1 is too much for them. They can’t be troubled with arrogance, just pure mini-game survival. The coyote though, he has the arrogance. He gets to Step 2 without knowing he’s there. He’s too clever by half – staring the farmer down, unaware of the meta-game or the required humility to survive.
Madoff was a coyote. He got really good at the story and the mini-games. Eventually, a pesky analyst and a few regulators went “farmer-with-a-shotgun” on him. He had stared across that property line at the farmers for a long time, thinking he was the alpha. You have to survive Step 2 to get close to the benefits of Step 3. Madoff was too clever by half.
As of 2018 (this could change!) Bezos has crushed the meta-game, mostly by finding industries stuck at Step 2 in mini-game mode. “Farmer Amazon” currently appears to have all retail coyotes in their sights. Books, clothes, food, appliances, you name it. Grocery stores didn’t even know it before they bagged Whole Foods. Talk about coyotes. Bezos’ genius is maintaining his intensity at Step 3. Protect the farm, Jeff.
So the visionaries we want to find – and the visionaries we want to be – grasp the importance of the 100/0/100 system. They understand the mini-game and the meta-game. They know the value of humility. This is the process. Next week we’ll take a deeper look into what informs our perceptions of risks, humility, and why we are as comfortable/terrified as we are at Step 3.
*attribution is important here. If you want a deeper dive, we are jacking these insights directly from the incredible team over at Epsilon Theory. See Ben Hunt’s note, “Too Clever By Half,” and Rusty Guinn’s “The Fundamentals Are Sound.”