The Seinfeld MBA

Annie Duke’s book (finally) came out today. Thus ends a year of me thinking about it and trying to pre-order it repeatedly. Shout out to the Amazon “oops! You already pre-ordered this” message that makes me feel less dumb. Anyway, I am stealing an older idea from her, and if – as I suspect – she breaks this down in the book, I’ll have to revisit it again because I am sure she’s going to do it better. For now, I’ll attempt to make it my own.

From Jerry Seinfeld’s bit, “Night Guy.”

“I never get enough sleep. I stay up late at night, ‘cause I’m Night Guy. Night Guy wants to stay up late. ‘What about getting up after five hours sleep?’ Oh that’s Morning Guy’s problem. That’s not my problem, I’m Night Guy. I stay up as late as I want. So you get up in the morning to your alarm, you’re exhausted, groggy, ‘oooh I hate that Night Guy!’ See, Night Guy always screws Morning Guy. There’s nothing Morning Guy can do. The only thing Morning Guy can do is try and oversleep often enough so that Day Guy loses his job and Night Guy has no money to go out anymore.”

Classic. Now, let’s educate the funny right out of this (cue teenager eye-rolls).

There are 3 “levels” that matter here:

1.       The Transaction Level

2.       The Risk Allocation Level

3.       The Risk Location Level

The bit is funny, because there’s one Jerry, but he’s making us think of Night Guy (NG), Morning Guy (MG), and Day Guy (DG) as three separate people. Each persona operates on Levels 1 and 2. Together, as Jerry, they operate on Level 3.

Imagine Jerry as CEO of Seinfeld Incorporated. NG is his sales division, MG is his assembly line, and DG is his CFO. When NG ramps up sales, MG starts to struggle to keep up. DG advises that Jerry can either:

A.      Choose to maximize profits and just make MG work a bit harder to complete the orders, or

B.      Invest in expanding MG’s capabilities to deliver more orders, which would cut into the profit bump they are getting from the increase in NG’s sales.

There’s a complicated balancing act at play here.

If we zoom in, NG’s Level 1 success comes from making the sale. The problem is, the promise of delivery shifts the downside risk onto MG – who doesn’t currently have the resources to easily meet the uptick in demand! NG’s Level 1 reward is MG’s Level 1 risk, or in Jerry’s words, “NG screws MG.” As soon as we have more than one transaction, we have Level 2 problems.

To solve a Level 2 problem, the bit takes the funny route of MG using DG to sabotage NG. In our less-funny Seinfeld Inc. scenario, DG presents us with the two choices. Jerry is going to need to choose one based on his longer-term vision for the company. The introduction of time and the need for forward projections creates our Level 3 problem.

To recap: Level 1 is just an isolated transaction. Level 2 handles the relationship between multiple transaction’s risks and rewards now, while Level 3 handles the current “portfolio” of transactions with an eye on what it all means later.

You can apply the same framework to any business. In the world of financial planning and asset management, the recent market volatility is full of anecdotes about Level 1 transactions, ex. “worst single-day point drop ever.” Occasionally the headlines dribble in some Level 2 information, like “stocks and bonds to sell-off again,” but you’re never really going to hear about Level 3.

To be abundantly (and redundantly) clear, Level 3 is where everything comes together. It’s intensely personal, and in a way, it’s by far the biggest deal. In fact, there’s so much nuance, that you are guaranteed to never see it in the headlines. It’s just a harder conversation. It is how we play the long game that determines if we win or lose. Level 3 is wearing the coat, Levels 1 and 2 are riding the tails.

So, be smart out there. Don’t let Morning Guy use Day Guy to sabotage Night Guy. Put all of the pieces together, and act with intent.

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