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June 20, 2017

Early Retirement Extreme

“By sowing frugality we reap liberty, a golden harvest.” – Agesilaus

Lessons learnt: Align your goals, let them build on each other. Money should work for you instead of the other way around. There are better ways to live than the 9-5 lifestyle.

What is money to you? Is it something you always spend when you have it? Or is it something you save up for a rainy day? In the Early Retirement Extreme, Jacob Lund Fisker proposes another way of thinking about money: as your employee. Instead of working for money, what if it could work for you! Of course, that’s not only what it’s about, the book describes everything from frugal living to aligning your goals. It’s the perfect book for the renaissance man (or if you don’t know what that is, it’s also perfect for you!)

In the first few chapters, Fisker describes the ‘lock-in’, or the current way of how we look at finances. ‘Normal’ people pursue a degree, a career, a big house with a white picket fence around it. Most don’t save for the future and an emergency fund is almost always small or non-existent (read: people on average have more debt than savings, in America). Is there a way out of this cycle?

Before we get to that, let’s consider four types of men. The salary, working, business-, and renaissance men. They are of course only prototypes, so imagine that you can also be anywhere in between these four:

Salaryman: The cog in the machine. A person who is dependent on salary and can’t stop working without going in deep debt.
Working man: The freelancer. A person who work intermediately and needs to have an emergency fund.
Businessman: The entrepreneur. He or she turns assets into income.
Renaissance man: The diversified intellectual. Independent of a job or income. Vast amounts of savings.

The renaissance man is a person who thinks about his or her life and takes a conscious decision on what is important. The renaissance man thinks about goals as building blocks that should complement each other. And he or she breaks apart the expenses into needs, wants and savings.

The renaissance lifestyle considers living frugally as one of the main philosophical pillars. It ponders whether we should own that brand new car (no) and if we can’t borrow the drill from the neighbours instead of buying one (yes). One of the key takeaways I found most interesting is that you should think about the lifetime spending you will have on things. Your TV subscription ‘only’ costs you 10 euros per month, but in 20 years that is easily 2400 euros (or much more if you incorporate returns). Throughout the book you will be introduced to many more frugal principles, relating to everything from health to transportation.

“Creation is a better means of self-expression than possession; it is through creating, not possessing, that life is revealed.” – Vida Scudder

In the end, the book is much more philosophy and contains little actual financial advice. There is a good reason for this, financial advice is always personal and differs greatly per situation, philosophy can be good for more than 3000 years. And so when you finish The Early Retirement Extreme you will be educated on living the renaissance life. And if everything works out you will become financially independent in only a few years.

Get it on Amazon:

The Early Retirement Extreme – Jacob Lund Fisker – ASIN: B0046LU7H0

June 19, 2017

Outliers

“Success is the result of perfection, hard work, learning from failure, loyalty, and persistence.” – Colin Powell

Lessons learnt: 10.000 hours of dedicated work is more important for success than luck. Giving meaning to your work will give you drive. Your environment has more impact on your success than you know.

As always Malcolm Gladwell keeps on amazing me. In Outliers: The Story of Success he digs into the hidden forces of not social events or our thinking, but what makes us successful. The book is divided into two parts, 1) opportunity and 2) legacy. In the first part, he tackles the notion that success comes from luck or inherent ‘talent’. He argues – very successfully – that hard work and dedication for something you stand behind are much more important than talent. In the second part, he argues that we are not alone in creating our success, we are very much dependent on our circumstances and the people around us. In an ever entertaining way – with the use of plenty of examples and stories – Gladwell has written another classic.

Many people like to believe that success comes from ‘talent’, that you are just lucky to have it. If you find out that you do not have ‘talent’ then you will never make it, others will always be better. Some may say that this is a fixed mindset (versus a growth mindset), you cannot fight the status quo. People love to bring up the young prodigy Mozart. He was composing music before most kids were even writing full sentences. Gladwell investigates this story and comes to three conclusions. The first is that Mozart was strongly pushed by his family, the second that his early work is actually not that good (go listen to it!), and third that at about 10,000 hours of deliberate practice his work came to be as brilliant as we all remember it to be.

You may argue that this is a one-time fluke and that there are many other people that have gained great success without much practice. For this, I challenge you to think of someone who has climbed the Mount Everest without training, a great voice without years of practice (pop-stars with auto-tuning do not count!), or a professor who only reads one book a year. Gladwell argues that you need about 10.000 hours of dedicated work to become an expert in your field. That does not mean you will be the best, that is dependent on how dedicated others are too. What he does strongly state is that it has little to do with intelligence (sorry SAT scores) or luck. If you are really dedicated to your work, you will put in the hours and become an expert.

But it is not all about you. Your environment has a very large – a much larger than we normally think of – impact. An investigation into the success of Bill Gates leads Gladwell to this conclusion. Bill Gates was born to a (moderately) wealthy family in America (2 points for environment). When he went to school, his school was one of the first to have computers (the really slow kind), he then got interested in them and wound up being one of the first people to work on computers at a university (2 more points for environment). It was the right place at the right time that made him start Microsoft. Also, the people around you can have a great impact. Think for instance about Silicon Valley, tech entrepreneurs do not (only) go there for the great weather, they know that there are likeminded people and opportunities to get to those 10.000 hours as quickly and effectively as possible.

“Practice isn’t the thing you do once you’re good. It’s the thing you do that makes you good.” -Malcolm Gladwell

Of course, success requires hard work, at the same time it is your environment that can greatly help you. I remember the personal story of Dan Ariely (author of Predictably Irrational and The Upside of Irrationality), where he speaks about the accident in which 3/4th of his body was burnt. He has no chance anymore to compete in sports and gets interested in the irrationality relating to small things like (not) taking medicine or how his nurses removed his bandages each time. He is now one of the leading thinkers in behavioural economics and irrationality. Sometimes you do not know what the future will bring, and where you may be motivated to do your work. All that is certain is that the right environment and your 10.000 hours are the (very difficult, but achievable) way of getting it.

The Book:

Outlier: The Story of Success – Malcolm Gladwell – ISBN-10: 9780316017930 – ISBN-13: 978-0316017930

Thinking, Fast and Slow

Thinking, Fast and Slow by Daniel Kahneman takes you on a journey through the extensive research that Daniel Kahneman and Amos Tversky have done. Luckily it is not a long, and boring read, that summarises the findings in academic jargon. The opposite is true, it gives a lively overview of their findings, and uses vivid real-life examples.

The main concept of Kahneman’s theory is a division between System 1 and System 2 thinking. System 1 is fast, intuitive, and emotional. System 2 is slow, deliberate, and more logical. When you try and solve the equation 2+2 you will almost immediately shout out the answer. But when you compute 12×37, a deliberate strategy, in which you apply some rules of math, will take place.

System 1 uses heuristics, shortcuts that make understanding the world less tiresome. Although most of the time this poses no problem, Kahneman has come up with an impressive list of worrisome cases when it does. Choice architecture, a topic also discussed by Dan Ariely, is only one of them.

Between The Netherlands and Belgium, there are vast differences in how many people are organ donors (think 25% and 90%). And now consider that The Netherlands has had a very large campaign to promote organ donor and has stuck at 25%. And Belgium has done no such thing. The key here is the form, in The Netherlands, it is an opt-in form, and in Belgium an opt-out form. That means that the default option in Belgium is to be an organ donor unless you actively say you do not want to be one. Kahneman shows that by such a small change, a vast difference between choices is possible.

Also see Predictably Irrational.

In a reflection on his lifetime of research, mostly with Tversky, Kahneman has done a great job of giving insight into the thinking of men. He has exposed many of the underlying principles that govern some of our largest flaws. He states that the System 2 thinking is hard and that our brain loves to be lazy. The power of habits becomes clear in that System 2 actions will become System 1 actions.

With a Nobel Prize in his pocket, Kahneman has done an astounding job of making the field of Social Science open to the public. The only critique on the book may be the length, after 418 pages of new information, your System 2 will be saturated.

The Book:

Thinking, Fast and Slow – Daniel Kahneman – ISBN-10: 0374533555 | ISBN-13: 978-0374533557

Drive

Drive: The Surprising Truth About What Motivates Us by Daniel Pink turns motivation upside down. Pink dissects motivation, throws out the old stick-and-carrot and replaces it with autonomy, mastery, and purpose. More illuminating than Drive would be quite the performance. It is based on rigorous science, yet is able to convey one clear message. Motivation needs to be rethought; we are working with an outdated system and need to reconsider how we motivate people.

The old system is a mismatch between what science knows and what business does. The latter depends on stick-and-carrot motivation. They offer large rewards for (individual) performances, but at the same time scare people with threats of layoffs. This system is based on extrinsic motivation and belongs in the 20th century. Yes, it does work there, the stick-and-carrot approach works for left-brain tasks. People work faster and faster when they are rewarded more and more for mechanical tasks. The question now is; how many jobs fit this description?

Almost all jobs in the current workforce ask for (rudimentary) cognitive skills. In the 21st century work consists of right-brain tasks. Instead of a narrow focus (stick-and-carrot), the jobs of today require creativity, problem-solving skills and novel approaches. The famous candlelight problem beautifully showcases this effect. When participants are presented with the classical problem they perform better when given no reward than when given a reward. And between a low and large reward there is a negative relationship; the larger the reward, the longer participants took to solve the problem. Only in the special (20th century) situation where the candles and pins were taken out of the box (making the solution obvious) did rewards have a positive impact.

Motivation in the 21st century should consist of three integrated parts. The first is autonomy; being free to choose what to do. The second is mastery; becoming better at something. The third is purpose; doing something that matters. Drive perfectly explains the three concepts and in the end, gives advice on how to activate the three areas to their full potential. Daniel Pink has written five books to date, he was the speechwriter for Al Gore and definitively knows his way with words. He has made Drive into a clear and concise book that achieves great explanatory power.

The Book: Drive: The Surprising Truth About What Motivates Us – Daniel Pink – ISBN-10: 1594484805| ISBN-13: 978-1594484803

The Dualities of Entrepreneurship

I’m writing this post for my Couchsurfing host in Copenhagen. He has been very generous in inviting me to his ‘hyggelig’ home, and with this post, I hope to be able to repay him partially. At the same time, this is a topic I’ve been wanted to explore for a long time now. It will explore the topic of dualities, of holding two thoughts in your head at the same time. I hope this blog helps and inspires.

Confident and Insecure

When I go on a challenging run I put on my shoes, warm clothes and get myself amped with some upbeat music. Without too many preparations I go out and start my run. Every run starts the same, easy at first, more difficult after the first hour has passed. “What did I get myself into“, I sometimes ask myself. Or just as likely, I say “Why am I doing this in the first place?“. I feel secure about my ability to start running, but I’m also insecure about my ability to continue running 3 hours into a marathon.

The same goes for business. I know how to install a WordPress website, I even know how to do it with ServerPilot and Digital Ocean Droplets (#nerd). But I don’t know how to do the perfect optimising for a website, or how to get the e-commerce funnel to start working better. I feel insecure about my ability to decide on what task is most important. And I feel insecure about what the future holds.

But I don’t stop. If I stopped I wouldn’t have run more than 1km in my life. Or if I stopped I wouldn’t have done the Iron Viking run. Whenever I feel insecure, I remind myself of two things. First, that I’ve come a long way already. Second, there is a next step to make. I don’t have all the answers, but inaction will not get me any further. And it’s ok to take a step back sometimes, my running ability sometimes deteriorates, but I always get back on the road.

I can feel both confident and insecure at the same time.

Selling and Being Human

“Hello, this is energy/internet/utility company 666 calling you with an amazing offer…” Who hasn’t had a call like that? It’s irritating, an intrusion on your time, and the chances of you buying something is indistinguishable from 0. At the same time, we do buy things, and we don’t always go for the cheapest option.

The second duality is selling and being human. Via email, phone and in-person, you are always selling. That is the idea I want to ‘sell’ you. If someone asks you what your business is, you tell your story, that isn’t selling, right? Well it is, your story is probably even one of the best ways of selling you or your company. And that friend in the office you told about your collection of TinTin figurines, if he comes back with one from his travels, didn’t you sell him your idea?

I believe that in every interaction you are ‘selling’ something. It might be an idea, it might be a request or it might be a ‘real’ sale you are pitching. There are small differences between incoming and outgoing sales, but they might be smaller than you think. If someone calls you to ask about your products, how is it different from you calling them? In both cases, you are presenting your offering. In both cases, the other party might be interested, or not.

What I think makes outbound selling difficult is that much of it is based on sending. You are projecting your worldview onto someone else. And there is a high likelihood that the other doesn’t share your worldview. When someone calls or emails you, the chances of a shared worldview are much higher. Therefore I think that in every interaction you have to be human, you have to be a person, talking to another person. Why not tell something about yourself, ask the other about their lives, before getting into the sales mode.

I think you’re always a sales human.

Now and Patience

If you know me, even remotely, you might say that I’m not the most patient person in the world. Some may even call me impatient. Because, why wait? Don’t we want to have it all, right now? Instant gratification is what our brains are built for, right? We get a dopamine shot for every time we open Facebook, check email, or scroll through Instagram once more. Blip.

Patience at the same time is what makes the world spin. If Martin Luther King Jr. wanted to end segregation in a day, he would be in despair and without energy after 24 hours. If you want to build a sustainable business, you can’t be done in one day. If you want to run a marathon, you have to train for months.

Our brains have a disposition for the now, the chemicals are happy when we ‘get’ something. At the same time, we are the only species that are any good at planning. We can save for retirement, we limit the cans of Ben&Jerry to once a week, and we sometimes don’t check social media for hours.

I believe that planning is one of our greatest skills and that through habits we can turn planning into actions in the now that have a positive outcome for the long-term. Habits are a way of using the now to take actions that help the ‘future’ you. We are attuned to the now, but that ‘now’ can help us build a great future.

Data and Gut Feeling

If you could be 100% certain, a decision should be very easy to make. Or should you trust your gut feeling, what could all that data even tell you? (insert favourite populist here). Of course, in most situations you have some data, but you don’t know everything for sure. You might have data about a bump in sales from last year when you promoted that discount code, but will it be the same this year? And what about external forces, like rain that will impact your protest or the presence of a crowd on your performance?

Data and gut feelings go hand in hand. In ‘Blink‘, Malcolm Gladwell makes the argument in favour of trusting our gut feelings. The example he uses is of a Greek statue that has passed all the authenticity tests, but it didn’t feel right to one of the board members of the museum. After the museum has bought the statue, it turns out it was a fake. This is a clear case for gut feeling, right?

Gut feeling is based on ‘adaptive unconscious’, which I loosely translate as the culmination of your experiences that send a signal to your brain which is too fast to be reasoned with. Or in other words, it’s based on data, it is years of experience, maybe even solid statistics, but something that gets interpreted without you being conscious of it.

Therefore I feel that your decisions should always be based on a healthy dose of gut feeling that is based on data.

Here is some more from ‘Simply Brilliant‘ by Wiliam C. Taylor. Double Vision, the capacity to act with confidence in terms of what’s always been done, even as they are doubting, questioning, and probing their assumptions. The data sometimes doesn’t exist. Yet without such leaps, companies and people remain stuck in the status quo.

Our great minds, that reside in all of us, have the ability to hold two thoughts at the same time. I believe that we should do that in many cases. And that in many of those cases, the duality between the thoughts is actually a synergy. Because together, they help you make better decisions for a better life.