As a hyper-aggressive 23-year-old, I trained in full contact fighting with Grover, a tall Marvin Hagler looking former middleweight champion, at a rundown gym behind a rock quarry in Northern, Ca. After one of our training sessions, I heard a voice on the other side of the quarry as I walked outside with Grover and my fight trainer, Walt.
“Hey, Eric Schiffer. I’m going to kick your xxx.” The voice came from across the rocks.
At first I was startled. Then I went into a fight zone. I started yelling back. “Get over here.”
Walt and the other fighter started snickering.
“Schiffer, get over here,” the distant yelling continued. I yelled back.
Now my friends were on the ground laughing. I wondered what they were laughing at and what kind of friends they were.
After more yelling, I turned to my trainer, who couldn’t contain himself any longer. He displayed to me how he could throw his voice like a stage ventriloquist. He had been projecting it deftly across the quarry and making me think I was under attack.
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That situation was a good metaphor for what I’ve experienced in business. You’ve got to stay in reality or you’re going to waste a lot of energy and make some bad decisions. That means knowing what’s true and what’s a delusion—about yourself or the situation. It’s great to pump yourself up with affirmations, but when you have the real facts, making the right decisions is a snap. It’s distortions, deletions, generalizations and obfuscations that muddy up and fog out the information you need for smart business decisions and great results. Warren Buffet and Charlie Munger are a good example of this principle in action. They spend a lot longer gathering data than making investing decisions. Once they have all the data, making a good call is fast. The facts are king.
So how do you make sure you have the facts and aren’t living on Planet Self Delusion? I ask myself and those who work for me these questions.
What Are The Facts? Is the data you have unshakable? How do you know? Are you assuming it or is it rock solid? Are there any other facts associated with it? Are you deleting anything? What is the source of the data? And what is your source’s source? What would happen if it is not correct?
Elon Musk uses an Aristotle methodology I like, called first principles, that is based on empirical facts, when he is deciding to pursue new ventures. It is based on questioning your assumptions. Say your team has told it you it costs X to manufacture a new product. Don’t accept that as the final reality. Go back to the beginning of the process and ask how much it costs to make each component and whether those costs could be renegotiated.
As Musk put in a recent video interview, “First principles mean you look at the most fundamental truths in a particular arena, the things that really are almost indisputably correct, and you reason up from there to a conclusion. And if you see that that conclusion is at odds with what people generally believe, then you have an opportunity.” To boil challenges down to their most basics truths and then reason upward from there means using a lot of brain power, but it works.
Musk says, “People say battery packs are really expensive and that’s just the way they will always be because that’s the way they have been in the past…They would say it’s going to cost, historically it cost $600 KW/hour. It’s not going to be much better that in the future…So first principles...we say what are the material constituents of the batteries. What is the spot market value of the material constituents? It has carbon, nickel, aluminum, and some polymers for separation, and a steel can..break that down on a material basis, if we bought that on a London Metal Exchange, what would each of these things cost. oh geez…It’s $80 KW/hour. Clearly, you need to think of clever ways to take those materials and combine them into the shape of a battery cell, and you can have batteries that are much cheaper than anyone realizes.”
What Don't I Know? The hyper-successful hedge fund manager Ray Dalio is well known for asking this question. What are the additional unknown facts that may support or undermine what you believe? Keep searching and questioning until they appear.
I learned this the hard way when making a strategic hire. We checked him out using an outside firm, but they had missed some things—like his reasons for leaving his prior work. Twelve months after paying him an exorbitant amount, we confirmed he was a stiff. A nice stiff but still a dead one. We removed the body.
What Don’t I Want To Admit? Many times we have the facts, but you don’t want to acknowledge them. Truth can be painful. But with real facts in hand, you can make smart calls that get you out of the problems you’re in. There were times when I had small red flags that came up about the hire I mentioned, but I didn’t make a move on them because I blocked the intuitive signs as too small or not important enough to challenge. I stayed hopeful about what he might bring instead of staying in reality and listening to what the facts said. A part of me didn't want to have to start over if I listened to them. But the facts don’t lie. Listening to them will save you time and money--and set you free to win big. What can you do now to gather more facts or act on the ones you already have?
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