Changing the Factory


Ideas change.

People adapt.

The last to change is the structure that organizes work.

Seth Godin's post today on The Factory in the Center speaks to the changes that are taking place in business today. Here's a relevant situation that I experienced ten years ago that still resonates with me today.

I was asked by a consultant friend to be part of a team that was going to re-engineer the production process of a hosiery mill. The company made the kind of men's dress socks that you find in department stores, outlet malls, Sam's Clubs, etc.

This family owned business was started by the father in the early 1940's. Now his son, son-law, and nephew were running the business. The father came to work everyday, even in his 80's, but the son ran the business. The son-in-law the marketing side and the nephew the production line.

It was the nephew who began the process of change. He saw that they were running out of money. He persuaded his uncle, the mill's founder to take a pay cut. He then convinced everyone that they need to change how they manufactured socks.

The problem was it took six weeks to make a pair of socks. There were 17 steps in the process. Each step had it own set up and staff to operate it. The problem was that each station operated independently of all the rest. The essential job was to produce inventory for the next station. As a result there was a lot more inventory sitting on the floor than there were orders.

The solution was to implement the Theory of Constraints system of organization. In effect, it was to connect each station with the one before and after it and only produce inventory from actual orders. This approach was implemented and within a few months, the length of time for manufacturing socks went from six weeks to six days. That change process was a success.

Imagine the excess capacity that they now had. To paraphrase, a famous sports saying, "Ladies and gentlemen, the constraint has left the building." This meant that once the production process was fixed, they needed to expand their marketing efforts to produce more orders. They were never able to do this, and within a year and a half, they closed the mill.

The problem in this instance was the inability to transition to a new way of understanding their business. I remember conversations about shifting from making socks to managing the inventory of stores by tracking sales, and producing only enough product to keep the store shelves stocked. Unfortunately, the family was stuck in a 1940's manufacturing mindset, and could not make a fast enough transition to a new way of operating. If they had made this shift 10 years before when they began to see the hand-writing on the wall, then they would probably be in business today.

Seth asks ...


What happens when the factory goes away?

You are no longer an owner. You are still a debtor, most likely, and employed by someone who out-thought you in order to change faster and more effectively than you did. That is if they would even hire you.

Here's reality. Today. Right now. This minute. 

There is LESS risk in changing than in not changing.

If you think you can keep doing what you've always done. Good luck. If you are right, you are the exception, not the rule, and you should get on your knees every night and thank God that you were in the right place at the right time to survive what others have not been able to do.

You can change your ideas.

You can change who you know, listen to, and hang out with.

You can change the people your read, follow and who inspires you.

But if you are not changing how your business is organized and functions, then all the rest is going to have a hard time being sustainable over the long term.

This is just the way it is today.

The Real Truth about Organizational Structure.

More precisely, this is why the Circle of Impact Leadership Guides matter to your business.

Circle of Impact- simpleThe structure of your business is the most change resistant part of your business. It resists because it does not exist in the same way Ideas and Relationships do. A new idea may come at you every day. Relationships are incredibly dynamic, forcing your to constantly adapt to the fickleness of emotion and inspired thought every day.

The structure just exists in place, until you change it.

Structures as a result without any attention to them tend to dictate how new ideas and relationships are to fit into the system.

In the above illustration, no one in the business thought the way to make sox should change until it became apparent that something was wrong. Because they didn't change ten years before, and they didn't change the entire organization structure, like their marketing program, they structural change they did adopt was too little, too late.

Look at the 12 Transition Points page in the leadership guide set.


The first seven of these points of transition can all have a structural cause behind them. They just aren't a personal experience. They are a personal experience inside of an organizational structure that is no longer working.

To change requires openness and a willingness to change, not once, but often, regularly, and with clear purpose. The real truth is that without change, things like organizational structures die. This is what happened to the hosiery mill.

What could they have done differently. They should have gone hi-tech and developed their company into an information management company, managing the sock inventory of their clients. This would have been a wholesale change in approach as a company.

The problem would have been none of the owners were information management people. They knew how to do one thing, make socks. So, to change the structure, means that we have to change ourselves as well.

This is the reality that we all live in today.

Taleb on Skepticism

Smart people many times outsmart themselves because they are confident about their intellectual ability. I place all politicians in this classification. The result is not an expansive mind open to truth or reality, but rather a closed mine of opinion and suspicion. When our minds become closed, we treat our opinions as personal statements, and we treat those who oppose us as threats or even enemies.

This is what I thought of when I watched this interview with Nassim Nicholas Taleb, author of The Black Swan. Here they are discussing David Cameron, UK Conservative Party leader who may well be the next Prime Minister. In this instance there is no difference between the politics of Britain and of the US. The difference is between kinds of liberalism and conservatism.

The key here is skepticism. Taleb is making a differentiation within the traditional economic ideology of both the left and the right. They are talking about conservative economic approaches, but the point applies to liberal/ progressives as well.

Skepticism isn't a tool applied to other people's ideas. It is applied to one's own decisions. It recognizes that every free decision holds risk. The question is how to mitigate the more disastrous consequences related to risk.

At the heart of Taleb's point is the need for politicians to be circumspect and humble about their own ideas. Their confidence and the public's declining confidence in them should be a sign that something is amiss.

I find no evidence of this kind of intellectual integrity by the politicians in Washington. This concerns me as it should every person on the planet. What happened a year ago is possible again. Where's the skepticism by the news media, by academics, by the public? There is evidence of it, but it is written off as disloyalty. In essence, check your brain at the door. Just be a good citizen and think as your are told.

I think it is time for a great deal more skepticism. Remember that on election day Tuesday.

If you have not read Taleb's books Fooled By Randomness and The Black Swan, I suggest you do. He is an excellent tonic to the optimism that passes for reason in Washington.

Bloodline in the rock

Over the weekend, we attended our church's annual congregation retreat. This year's theme was Play, and we played in many creative ways.

Bloodline in the Rock - Mt Moran 2

Drawing and painting on the form of a small Greek cross was one of activities. The collection of pictures will be brought together into a larger painting to be hung in the church in the future.  I painted two of these pictures.

Bloodline in the rock is of a mountain in Wyoming of which I'm particularly fond. Mt. Moran, in the Grand Teton range of Jackson Hole, is a mountain of massive granite which has a diabase basalt dike of reddish brown lava that cuts vertically through the mountain.  I find its presence endlessly fascinating because it represents to me how good things can rise up from the hardness of life. My picture is more of what the mountain represents to me, than a picture of the mountain itself.

In much of life, when we try something new, we are taking a risk. Risks are inherent in life. Do we accept these risks as a way to expanding the range of our expression, or as an unavoidable facet of life?

Andy Goldsworthy is a sculptor who uses natural materials in extraordinary ways. In his video Rivers and Tides, a sculpture that he has been working on falls apart in the wind, he says,

"When I make a work, I often take it to the very edge of its collapse; that's a very beautiful balance."

Here is Goldsworthy creating an arch out of stone, and toward the end of the video removing pieces of it to see if it will collapse.

As in art, so also in life, translating what we see in the natural world into expressions of our passion and commitments enable us to see more of who we are in the context of the world we live in.

Cairn of Fire 2

Having painted Bloodline in the rock, and then introduced to Andy Goldsworthy by our artist guide, I decided to paint another of my favorite objects, a simple rock cairn.  I called it Cairn of Fire.

What did I learn from this little experiment in artistic expression? It really helps to be an observant person. We see things as objects, like a mountain or a pile of rocks. But we don't normally see the interrelation of the parts. For example, in trying to draw a cairn, I knew that the typical cairn is not uniform, but very eclectic. What I did, as a result, is try to draw the stones in the cairn very quickly so they would not be uniform. 

The ability to see what is there in the picture is no different than seeing and hearing what is going on around you. Learning to observe is learning to be a better communicator. To observe is to shift one's attention away from your own thoughts to what is happening in front of you.

Whatever you think you see or hear is a perception of what actually takes place.

Mt Moran close up

Bloodline in the rock is not an exact representation of Mt. Moran. The lava dike on the mountain is visible in the circle.  My painting is my perception of the mountain that you see here. To see it with the human eye, rather than through a photograph is to see it differently. In this shot, it seems insignificant. But to stand here by Jenny Lake in the Grand Teton National Forest and look at it, the dike stands out much more.

What I learned from playing with paint, a brush and some crayons is that we can learn to express ourselves in new ways. This is important if we are to communicate what is important to us.

I encourage you to take a pencil and quickly, in a manner of a few minutes, draw something that matters to you. It won't be perfect because there is no such thing in art. I once heard it say that a work of art is never finished. I think this is also true for our lives. And the more we test the boundaries and horizons of our expression, quite possibly as Andy Goldsworthy has learned, we'll find a very beautiful balance that will enhance the quality of our lives in ways unimaginable right this moment.

How Risk Tolerant are You?


Seth Godin writes,

It's easy to to adopt the policy of avoiding risk at all costs, that whenever possible, the products you launch or the engagements you have should be flawless and without downside.

Here's the problem: in most endeavors, a small increase in risk can double the reward. It's the second doubling of reward that brings serious risk with it. But the first leap is relatively painless.

The point he makes is true, without risk there is no reward. The greater the risk, the greater the reward.  However, I don't think he has taken this idea far enough.

There is a powerful mythology shared by millions of people that says you can avoid risk and find safety, comfort and security. It is best expressed by those who resist change.

Risk is embedded in every act, decision, thought and encounter.

Risk is not just an issue of the size of reward. It is a core element in the opportunity factor that exists in every situation.

Let's ask these questions:

Am I busy because I am trying to maximize the potential in every situation and encounter I have?

Or, am I busy trying to avoid risk and loss?

Our perception of risk has more to do how we view change that whether we have courage and bravura. The real question of risk tolerance is one about our preferred approach to change.

Four Approaches to Change


I've identified four approaches to change that mirror people's comfort level with risk.

The Change-phobic responds to change with resistance out of fear of the unknown and the risk associated with it. There is great risk in not changing at all.

The Change Junkie on the other hand embraces change to such a degree that continuity and sustainability of effort and progress are not possible. There is great risk in this approach.

The Change Receptive and Change Initiator live within a balanced understanding of the need for change and continuity in life and work.

People who are too conservative in their approach to risk do not understand that they may be losing out on opportunities because they refuse to change. People who risk everything for the sheer adrenaline rush of it may also lose through recklessness.

If we accept that risk is a part of everything we do, every day, it changes our perception of reality. It rids us of the delusion that safety, comfort and security can be gained without change. Instead it shows us that only by constantly responding to the opportunities before us that balance can be found in the transitions we experience.

The choice isn't risk or not risk, to change or not to change.

Risk is a part of life. Change can foster the conditions needed to achieve the impact we desire.  It isn't an either / or question, but a How question.

How do we manage risk and live in a time of constant change?

Here's how we start.

We embrace reality by ridding ourselves of uncritically held assumptions about the past that cause us to resist change.

We must be clear about the impact that we want to achieve. To be clear about our impact is to know the change we want to create. 

We take responsibility for our own decisions, rather than simply following the path of least resistance.

Ultimately, managing risk is managing our own tolerance for change.

Accepting change as a normal aspect of life, and risk as an aspect of it enables us to live and work with confidence without fear and indecision.

Quick Takes: Jim Collins on Thriving in 2009

Jim Collins is one of a handful of business writers that every leader should read. His two books Built To Last (written with Jerry Porras) and Good To Great are insightful perspectives on how to build a great company. And if you work or volunteer in the community-based or non-profit organization, you should read also Collins' Good To Great and the Social Sectors.

In celebration of Inc. magazine's 30 anniversary, Bo Burlingham, the magazine's editor-at-large, interviewed Jim Collins. Here are a couple of portions worth noting.

How do you define entrepreneurship?

I take a broad view of it. The traditional definition -- founding an entity designed to make money -- is too narrow for me. I see entrepreneurship as more of a life concept. We all make choices about how we live our lives. You can take a paint-by-numbers approach, or you can start with a blank canvas. When you paint by numbers, the end result is guaranteed. You know what it's going to be, and it might be good, but it will never be a masterpiece. Starting with a blank canvas is the only way to get a masterpiece, but you could also blow up. So, are you going to pick the paint-by-numbers kit or the blank canvas? That's a life question, not a business question.

It has to do with your ability to handle risk, no?

Not risk. Ambiguity. People confuse the two. My students used to come to me at Stanford and say, "I'd really like to do something on my own, but I'm just not ready to take that much risk. So I took the job with IBM." And I would say, "You're not ready for risk? What's the first thing you learn about investing? Never put all your eggs in one basket. You've just put all your eggs in one basket that is held by somebody else." As an entrepreneur, you know what the risks are. You see them. You understand them. You manage them. If you join someone else's company, you may not know those risks, and not because they don't exist. You just can't see them, and so you can't manage them. That's a much more exposed position than the entrepreneur faces. But there's lower ambiguity on the paint-by-numbers path: very clear but more risky. The entrepreneurial path: very ambiguous but less risk. Of course, the truth is that it's all ambiguous, anyway. If you think you can predict the future, you're crazy.

I think he is correct. You work for someone else, you are at their mercy. I know three people who recently lost their jobs. Each were strong producers, and they were unceremoniously let go. For me as the owner of my own business, the only person who can fire me is me. Yet, ambiguity describes my daily existence. Is there risk, sure, but there is less than what my associates have experienced.

We are now, I think, having to adjust to dealing with a world that is going to be ferocious. We don't have any practice with that. People like me who grew up in the postwar period are not practiced at the volatilities, the turbulence, the uncertainties of the world that will probably define the second half of my life.

You sound pessimistic.

No. It is only in times like these that you get a chance to show your strength. In the end, I think we need to have absolute faith in our ability to deal with whatever is thrown at us. And we need to have a complete, realistic paranoia that a lot can be thrown at us. It's our ability to put those two contradictory ideas together: We need to be prepared for what we can't predict and, at the same time, have this total, unwavering faith that we will find a way to deal with all of it. And I believe we will. I don't believe the world will treat us well, but we will figure out how to do very well.

What's the source of your optimism?

A lot of it has to do with the young generation. A general at West Point told me, "This is the most inspired and inspiring generation to come through West Point since 1945." I see the same thing with the young people who come to work for me. They have a sense of responsibility and service and a lack of cynicism that is remarkable and wonderful. It's an ethos, and it's collective. That's what's really powerful. It's connected technologically. It's not grandiose, but there is a fundamental assumption of being part of a much larger world and a much larger set of aspirations. The world can be a really awful, brutal, turbulent place. And yet I'm hopeful precisely because of this generation of kids. I really think we ought to just give them the keys as soon as we can. Let them run it.

 I agree on both counts. The time we live in is ferocious and the Millennial generation is up to the task of leading it.

Read the whole article and pass it along to friends and colleagues.

Quick Takes: The Six Currencies of Credibility

In Roy Williams', the Wizard of Ads, Monday Morning Memo today, writes about the Six Currencies of Credibility.

Tom Wanek believes credibility can be “purchased” by risking one or more of six currencies. The more you put at risk, the more believable your message. 

As I read the memo, I realized that what Williams and Wanek are pointing towards is an older idea that goes back to the ancients. The idea - that sacrifice for the greater good is how heroes are formed. 

It is it any wonder why members of our military are honored for their sacrifices on an annual basis in ceremonies across the country. They place their lives on the line on the field of battle so citizens won't have to do so on the streets in their neighborhoods. Talk to those who have served in battle, and they will tell you, the only heroes are the ones who have died in service to their country.

Isn't also true that Wall Street CEO's have received a bad rap simply because they can demonstrate no sacrifice of their own privilege in order for the great good to be found.

Williams writes,

5. Reputation & Prestige
In a report released two weeks ago by CNN/Opinion Research, George W. Bush had an approval rating of just 24 percent. In a press conference held the following week, the President said he regretted saying he wanted Osama bin Laden "dead or alive" and that he had urged the Iraqi insurgents in 2003, “bring ‘em on.” He said he was sorry such language made the world believe he was “not a man of peace.” By putting his prestige at risk and eating a slice of humble pie, George W. Bush regained some of his lost credibility, don’t you think?

Isn't this the same challenge that Barack Obama now faces?  Campaign promises turn into governing expectations. His credibility is on the line. What will he risk in his reputation and prestige in order to earn credibility?  If Bush lost it for misstatements and poorly understanding the importance of public perception, can Obama avoid it by being different.

Read Roy Williams paragraph again. The key idea embedded there is the need for humility. Credibility comes from risk, and humbly recognizing that I'm placing my reputation and prestige on the line for the greater good. The greater good could be world peace, or, it could be a client's indecision about proceeding with a project. What are they looking for? Humble circumspection. Credibility comes from recognition that I don't know everything, and yet, I'm confident that we'll find a way through. 

So, some kinds of risk is good, and builds strength.  How are you building greater credibility during this time of economic disruption? As we turn from a nation of consumers to one of spending skeptics, credibility becomes one our most important assets. Spend it wisely.

You can sign up for Roy Williams Monday Morning Memo at the top of this page. It is one of the best thought pieces I get every week.

UPDATE: Nows here is the beginning of some credibility on Wall Street.

Goldman Chiefs Give Up Bonuses: Seven Top Executives to Forgo Millions in 2008; Move Could Pressure Other Firms

Quick Takes: Taleb on the Crisis

If you've read me for a while, you'll know that I am a fan of Nassim Nicholas Taleb, the former derivatives trader and author of Fooled By Randomness and The Black Swan.  He's written about the current financial crisis here and there is an excellent interview with him in Time. If you are not familiar with Taleb's worldview, start with the Time interview.

According to Taleb, black swans are ocurrences that are unforeseen yet happened. In the Time interview he points to the rise of the internet as one positive one, and the 9/11 attacks as another. At his website, Taleb has extracted a set of quotes from The Black Swan that describes one of the contributing factors to the global financial crisis that we are facing. Here's the quote.

Globalization creates interlocking fragility, while reducing volatility and giving the appearance of stability. In other words it creates devastating Black Swans. We have never lived before under the threat of a global collapse. Financial Institutions have been merging into a smaller number of very large banks. Almost all banks are interrelated. So the financial ecology is swelling into gigantic, incestuous, bureaucratic banks – when one fails, they all fall.  The increased concentration among banks seems to have the effect of making financial crises less likely, but when they happen they are more global in scale and hit us very hard. We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogeneous framework of firms that all resemble one another. True, we now have fewer failures, but when they occur ….I shiver at the thought.

Banks hire dull people and train them to be even more dull. If they look conservative, it's only because their loans go bust on rare, very rare occasions. But (...)bankers are not conservative at all. They are just phenomenally skilled at self-deception by burying the possibility of a large, devastating loss under the rug.

The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deemed these events "unlikely".

There is no way to gauge the effectiveness of their lending activity by observing it over a day, a week, a month, or . . . even a century!

(...)  the real- estate collapse of the early 1990s in which the now defunct savings and loan industry required a taxpayer-funded bailout of more than half a trillion dollars. The Federal Reserve bank protected them at our expense: when "conservative" bankers make profits, they get the benefits; when they are hurt, we pay the costs.

Once again, recall the story of banks hiding explosive risks in their portfolios. It is not a good idea to trust corporations with matters such as rare events because the performance of these executives is not observable on a short-term basis, and they will game the system by showing good performance so they can get their yearly bonus. The Achilles’ heel of capitalism is that if you make corporations compete, it is sometimes the one that is most exposed to the negative Black Swan that will appear to be the most fit for survival.

As if we did not have enough problems, banks are now more vulnerable to the Black Swan and the ludic fallacy than ever before with “scientists” among their staff taking care of exposures. The giant firm J. P. Morgan put the entire world at risk by introducing in the nineties RiskMetrics, a phony method aiming at managing people’s risks, causing the generalized use of the ludic fallacy, and bringing Dr. Johns into power in place of the skeptical Fat Tonys. (A related method called “Value-at-Risk,” which relies on the quantitative measurement of risk, has been spreading.)

Please, don’t drive a school bus blindfolded.

Owing to [...] misunderstanding of the causal chains between policy and actions, we can easily trigger Black Swans thanks to aggressive ignorance—like a child playing with a chemistry kit.

My conclusion is that as a society we are practicing cognitive dissonance on a global scale. We are doing what Paul Simon penned his his classic '60s hit The Boxer, "People believe what they want to believe and disregard the rest."  People believe what they want to believe about the financial crisis, about presidential candidates, about whether whatever it is that they don't want to actually address in reality.

In my previous post on Michael Malone's rant about the decline of journalism, the same holds true there. The Black Swan of this election is not what we don't know about these candidates that will wreck havoc upon the country, but what we do know and what we choose to ignore.

The financial crisis we are in isn't a classic Black Swan. The signs were there for all to see if they only chose to do so. The problem isn't that we are not a smart people, but we are indifferent and ignorant of the consequenses of our opinions and choices. And no more amply seen in this year's presidential election.

Addendum: David Brooks, in today's NY Times, writes about Taleb and the growing influence of behavioral economists like Danny Kahneman, whom Taleb credits highly for his understanding of the perception of risk. It is an excellent look at what I'm calling cognitive dissonance. Brooks writes about Taleb.

His writing is idiosyncratic, but he does touch on many of the perceptual biases that distort our thinking: our tendency to see data that confirm our prejudices more vividly than data that contradict them; our tendency to overvalue recent events when anticipating future possibilities; our tendency to spin concurring facts into a single causal narrative; our tendency to applaud our own supposed skill in circumstances when we’ve actually benefited from dumb luck. And looking at the financial crisis, it is easy to see dozens of errors of perception. Traders misperceived the possibility of rare events. They got caught in social contagions and reinforced each other’s risk assessments. They failed to perceive how tightly linked global networks can transform small events into big disasters., who published a Taleb piece linked to above, also has a lot of material on Kahneman. This is pretty heavy stuff, but ultimately worthwhile. The simple idea that emerges is that we are much less rational, as intelligent beings, than we want to think of ourselves being. In reality, we are emotional beings who use our rationality to rationalize our choices. Hence, the person who is either emotionally conflicted or immature, could well make really bad decisions by practicing a high level game of self-deception.

The best treatment of self-deception is the Arbinger Institute book, Leadership and Self-Deception.  I highly recommend this book. It will be a revelation to you about how we fool ourselves into self-justifying rationalization that is intended to help avoid accountability for our bad decisions. It is the very thing which I see played out in the news over the past few weeks. Everyone is rushing to fix blame on someone else. As a result, we get a bail out plan that has not worked, and a market that is continuing to lose value.  What this tells me is that the people (wisdom of crowds?) is not yet emotionally comfortable with what the federal government is doing.

The same self-delusion that leads to looking for scape goats in our relationships, is at work in how this financial mess gets cleared up, and how we are selecting a president. You may not like George Bush's performance as president, but that is no basis for deciding who the next president will be. They should be selected on their own terms. As I told some friends yesterday, it feels like the 1970's all over again, now as then, the self-deception is at the heart of our decision making processes is alive and well.

And be sure to watch this PBS NewsHour interview with Taleb and his mentor Benoit Mandelbrot.

Quick Takes: Counting Risk

Here are two articles - here and here - that relate to the new film 21. Here are some quotes from Jim Manzi's post.

Surprisingly, one thing that 21 made clear was that card counting isn’t an IQ test, it’s a character test.
In the broader sense, the gambling environment tends to attract self-destructive people and encourage self-destructive behavior. The card counting teams that I knew did pretty much what was shown in the movie, e.g., wear costumes to avoid detection, repeatedly return to the same casinos to be treated like high rollers and so on. Though the members had trouble admitting this to themselves, they were acting out fantasies and seeking camaraderie as much as they were trying to take the house for money. Eventually, the teams (in somewhat less dramatic fashion than in the movie) would always fall out over money as a consequence of trying to divide up gains and losses in a venture with large capital requirements and extremely variable earnings.
My experience was that it was very easy to stay under the radar of casinos if you didn’t feel the need to do any of that. Just play solo at the quarter tables, never spike your bet above 5:1, and play no more than one hour at casino before you move on to the next one. There are about 100 casinos in Vegas, so you can play ten hours per day every other weekend and only visit a given casino once every two or three months (for an hour each time). No pit boss will know who you are or care what you’re doing because you’re so far down in the noise. You can make a lot of money this way. Of course, nobody will ever know that you are taking them, and the emotional satisfaction arises from walking into this multi-billion dollar enterprise and walking out with their money because you’re smarter and more disciplined than they are. In a bizarre way, you succeed through classical bourgeois virtues: self-discipline, frugality, ego control and steady work.

And from the Wall Street Journal article.

WSJ: What can your blackjack strategy tell us about how to manage risk in today's markets?

Mr. Thorp: You have to make sure that you don't over-bet. Suppose you have a 5% edge over your opponent when tossing a coin. The optimal thing to do, if you want to get rich, is to bet 5% of your wealth on each toss -- but never more. If you bet much more you can be ruined, even if you have a favorable situation.

Good lessons here about risk management and personal character. It takes me back to Nassim Taleb's book, The Black Swan. Not seeing the potential disaster is more a product of character than it is a product of knowledge. If you haven't read either of Taleb's books, you should. On the short list of most important books written in a generation.

At the heart of the problem of risk is a choice between two perspectives. The first one is a belief that  there is an ideal, utopian opportunity available to everyone.  It is embedded in the idea that you can be anything you want to be. It  is embedded in the notion that all we need to do is care and talk, and all conflicts will go a way. 

The other view is the tragic one. This view sees that all things are a mixture of good and bad. That embedded in every opportunity is risk. It is tempting to think that the financial wizards responsible for the sub-prime lending fiasco should have seen this coming, but I don't believe that is the case.  They are utopians at heart which feeds greed and run-away egotism.  To a utopian, the only evil is the person who isn't a utopian or your kind of utopian. It is at the heart of our political system today.

Managing risk is about managing one's own best and worst inclinations. As the oracle commends, "Know thyself." I'd say that Jim Manzi's gambling methodology begins and ends with this bit of wisdom. A word to all who believe that utopia is within reach, and that someone else can pay for the risk.


The Risk of not taking the risk

Bob Sutton of the Stanford has a perceptive take on Bill Taylor and Polly LaBarre's Mavericks at Work.  He observes ...

I love the book, and I guess my only complaint is that – as much as I believe that mavericks, deviants, rebels, revolutionaries, or whatever you want to call people who go against grain –- are essential to innovation, I think that Taylor and LaBarre should have talked a bit more about the risks and downsides of challenging the status quo.

It turns out that failure is the fate of most mavericks; for every success story that we hear about, there many more deviants or revolutionaries who have been shunned, fired, or ran their organizations into the ground. As James March, Stanford’s renowned organizational theorist, put it: “Most deviants end up on the scrap pile of failed mutations, not as heroes of organizational transformation.” And identifying which few mavericks are likely to win has proven to be difficult for researchers and investors –- after all, most new companies and products fail. Again, I turn to Jim March:

Unfortunately, the difference between visionary genius and delusional madness is much clearer in history books than in experience. … Only a tiny proportion of our heretics will ever be canonized, and we cannot identify the saints ahead of time.

Although being a maverick is risky, I agree with Taylor and LaBarre that they are essential to innovation.

Sutton makes a good point.  If you are going to be a Maverick, you are running a risk of failure and rejection, among other things.  Yet, I'd have to say that risk is a two way street. Sure there is a risk in trying something new. 

Isn't there also a risk that by doing the same thing over and over again that you will miss out on opportunities? Most of the people I know are not risk takers in any way.  Even the most entrepreneurial are extremely careful about risk.  So, while I agree with Bob Sutton, and with the premise behind the Mavericks book, at least within the circle of relations that I have, there are very few genuine Mavericks, very few that are willing to do things that have a clear risk to them.

My advice is that you don't make your primary decisions about whether it is risky or not. Rather, determine what is the potential impact, and then address the risk factor as an implementation question, rather than as a do or don't do question.