Ray Dalio’s book, Principles, is definitely one of my favourite books of the year. Ray Dalio also has an app.

My summary notes are here:

Contents

Table of Contents

Ray Dalio’s Life Principles

YouTube Animation: https://www.youtube.com/watch?v=B9XGUpQZY38

Think for yourself to decide 1) what you want 2) what is true and 3) what you should do to achieve #1 in light of #2, and do that with humility and open-mindedness so that you consider the best thinking available to you

Why Having Principles is Important

Over the course of our lives, we make millions and millions of decisions that are essentially bets, some large and some small
We are all born with different thinking abilities but we aren’t born with decision making skills

Judging People

Leaders must be judged within the context of the circumstances they encounter & how difficult it is
Highly principled people often operate in highly unprincipled environments
Judging people before really seeing things through their eyes stand in the way of understanding their circumstances and that isn’t smart

Friends and Being Down

One has many more supposed friends when one is up than when one is down because most people like to be with winners and shun losers. True friends are the opposite
I get a lot out of my bad times, not just because they gave me mistakes to learn about but also because they helped me find out who my real friends were, the ones that would help through thick and thin

Dealing with Pain

Instead of feeling frustrated or overwhelmed by pain, I saw pain as nature’s reminder that there is something important for me to learn.
Encountering pain and figuring out the lessons became a sort of game to me.
Regularly use pain to trigger quality reflections.

Wealth and Happiness

The incremental benefits of having a lot and being on top are not as great as people think. Having the basics — a good bed, good relationships, good food & good sex — is the most important and those things don’t get much better when you have a lot of money or much worse when you have less.
The marginal benefits of having more fall off pretty quickly
I cannot say that having an intense life filled with accomplishments is better than having a relaxed life filled with savoring, though I can say that being stronger is better than being weak, and that struggling gives one strength
The happiest people discover their own nature and match their life to it
Knowing how you’re wired is necessary as a first step on any life journey. It doesn’t matter what you do with your life, as long as you’re doing what’s consistent with your nature and your aspirations
There’s no correlation between happiness levels and conventional markers of success.
A carpenter who derives his deepest satisfaction from working with wood can easily have a life as good or better than the president of the United States

Strength of the Subconscious

One of the most important things I’ve come to understand is that most of the processes that go into everyday decision making are subconscious and more complex

The 5 Step Process to Get What You Want

Have clear goals
Identify and don’t tolerate the problems that stand in the way of your achieving those goals
Accurately diagnose the problems to get at their root causes
Design plans that will get you around them
Do what’s necessary to push these designs through to results

All of the 5 steps proceed from your values. Your values determine what you want — your goals. The 5 steps are iterative. When you do step 1, you have new information that will likely lead you to modify the other steps. When you have completed all 5, you’ll start again with a new goal. If the process is working, your goals will change more slowly than your designs, which will change more slowly than your tasks.

1. Have Clear Goals

Prioritize. If you work hard and creatively, you can have virtually anything you want, but not everything. Maturity is the ability to reject good alternatives in order to pursue even better ones.
Some people fail at this point because they try to pursue too many goals at once, achieving few or none of them. Make your choice and get on with it.
Don’t confuse Goals with Desires. A goal is something you really need to achieveDesires are things that you want that can prevent you from reaching your goals and are typically first order consequences. Your goal might be physical fitness while your desire is to eat good tasting but unhealthy food like a bag of chips
Decide what you really want in life by reconciling your goals and your desires. The most fulfilling are things that feel right at both levels of desires and goals.
Don’t mistake the trappings of success for success itself. People who obsess over $1,200 pair of shoes or a fancy car are very rarely happy because they don’t know what it is that they really want and hence what will satisfy them
Never rule out a goal because you think it’s unattainable. Be audacious. The you think is attainable is just a function of what you know at the moment. Once you start your pursuit, you will learn a low and paths you never saw will emerge.
Great Expectations Create Great Capabilities. If you are setting goals that you already know you can achieve, your bar is set way too low
The Key to Succeeding is Flexibility and Self Accountability. Flexibility is what allows you to accept what reality or knowledgable people teaches you. Self accountability is essential because you will see your failing to achieve as indicative that you haven’t been creative, flexible or determined enough to do what it takes and make you much more motivated to find the way
Knowing how to deal with your setbacks is as important as knowing how to move forward. Sometimes life will throw you challenges which may seem devastating at the time. Your goal might be to keep what you have, minimize your rate of loss or simply to deal with a loss that’s irrevocable. Your mission is always to make the best possible choices knowing that you will be rewarded if you do.

2. Identify and don’t tolerate problems

View painful problems as potential improvements that are screaming at you. Every problem you encounter is an opportunity. It’s essential that you bring them to the surface
Don’t avoid confronting problems because they are rooted in harsh realities that are unpleasant to look at. Thinking about problems that are difficult to solve may make you anxious but not thinking about them should make you more anxious. The pains your are feeling are “growing pains” that will test your character and reward you as you push through them
Be SPECIFIC in identifying your problems. You need to be precise because different problems have different solutions. If a problem is due to inadequate skill, additional training may be called for. If it arises from an innate weakness, you need to seek assistance from someone or change the role you play. If a problem comes from someone else’s weaknesses, replace them with someone who is strong where it’s needed. That’s just the way it is
Don’t mix a cause of a problem with the real problem. I can’t get enough sleep is not a problem, it is the potential cause. To clarify your thinking, identify the bad outcome first like I am performing poorly in my job.
Distinguish big problems from small ones. You only have so much time and energy. Invest in bigger problems. Invest some in smaller ones to make sure they don’t become big ones.
Once you identify a problem, don’t tolerate it. Tolerating a problem has the same consequences as failing to identify it. You need to develop a fierce intolerance of badness of any kind regardless of its severity

3. Diagnose Problem to Get At Their Root Causes

Focus on the“what is” before deciding“what to do about it” It is a common mistake to move immediately from identifying a tough problem to proposing a solution for it. Strategic thinking requires both diagnosis and design. A good diagnosis typically takes 15 minutes to 1 hour. It involves speaking with relevant people and looking at the evidence together to determine the root causes. Root causes manifest themselves over and over again in seemingly different situations
Distinguish proximate causes from root causes. Proximate causes are typically the actions (or lack of actions) that lead to problems, so they are described with verbs (I missed the train because I didn’t check the train schedule). Root causes run much deeper and they are typically described with adjectives (I didn’t check the train schedule because I am forgetful). Distinguish symptoms from the disease.
Recognize that knowing what someone(including you) is like will tell you what you can expect from them. Your employees are reluctant to point out your mistakes because they don’t want to hurt you. You need to get over this. What differentiates people who live up to their potential from those who don’t is their willingness to look at themselves and others objectively and understand the root causes standing in their way.

4. Design A Plan

Go back before you go forward. Replace the story of where you have been or what you have done that led up to where you are now, and then visualize what you and others must do in the future so you will reach your goals.
Think about your problem as a set of outcomes produced by a machine. Practice higher level thinking by looking down on your machine and how it can be changed to produce better outcomes
Remember that there are typically many paths to achieving your goals. You only need to find one that works
Think of your plan as being like a movie script in that you visualize who will do what through time. Sketch out the plan broadly at first (hire great people) then refine it. You should go from big picture and drill down to specific tasks and estimated time lines (in the next two weeks, choose headhunters who will find those great people).
Write down your plan for everyone to see and measure your progress against. This includes all the granular details about who needs to do what tasks and when. The tasks, the narrative and the goals are different, so don’t mix them up. Remember, the tasks are what connect the narrative to your goals.
Recognize that it doesn’t take a lot of time to design a good planA plan can be done in just hours. Designing precedes doing!

5. Push through to completion

Great planners who don’t execute their plans go nowhere. You need to push through and that requires self discipline to follow your script. It’s important to remember the connection between your tasks and your goals that they are meant to achieve
Good work habits are vastly underrated. People who push through successfully have to-do lists that are reasonably prioritized, and they make certain each item is ticked off in order
Establish clear metrics to make certain that you are following your plan. Someone other than you should be objectively measuring and reporting on your progress. If you’re not hitting your targets, that’s another problem that needs to be diagnosed and solved. There are many successful, creative people who are not good at execution. They succeed because they forge symbiotic relationships with highly reliable task-doers.

Execution

You can’t do all of these steps well because each requires different types of thinking.
Goal setting → high level thinking like visualization and prioritization Identifying and not tolerating problems → perceptive, good at synthesis and maintaining high standardsDiagnosis → Logical, able to see multiple possibilities, and willing to have hard conversations with othersDesigning → visualization and practicality Executing → self discipline, good work habits and results orientation

Self Diagnosis

Look at your pattern of mistakes and identify at which step in the 5 step process you typically fail. Get input from others.
Everyone has at least one big thing that stands in the way of their success. Find yours and deal with it. It could be pushing through to results and also write down why it exists (your emotions trip you up or you can’t visualize adequate possibilities).

Be Radically Open Minded

Recognize your 2 barriers
- Ego
- Blind spots
Radical open-mindedness is motivated by the genuine worry that you might be seeing your choices optimally
- Sincerely believe that you might not know the best possible path and recognize that your ability to deal well with not knowing is more important than whatever it is you do know
  - Too many people make bad decisions because they’re so sure that they’re right and they don’t allow themselves to see better alternatives that exist
  - Know that coming up with the right questions and asking other smart people what they think is as important as having all the answers
- Decision making is a two step process. 1. Take in all relevant information, 2. Decide
  - Too many people are reluctant to take in information that is inconsistent with what they have already concluded
  - “I want to make up my own mind”
- Don’t worry about looking good. Worry about achieving your goal
  - Too many people believe that great people have all the answers and don’t have any weaknesses. This is NOT REALITY! And it stands in the way of progress
  - People interesting in making the best possible decisions are rarely confident they have the best answers. They recognize they have weaknesses and blindspots and try to learn more to get around them
- To gain an alternative perspective, you must suspend judgement for a time
  - Open-mindedness doesn’t mean going along with what you don’t believe in. It means considering the reasoning of others instead of stubbornly holding onto your own point of view
- You are looking for the Best Answer, not Simple the Answer You Come Up with Yourself
  - If you’re looking at things objectively and know that the probability of you always having the best answer is small and even if you have it, you can’t be confident that you do before others test you
- Be clear on whether you’re arguing or seeking to understand and think about what is most appropriate based on believability
  - Believability is based on people that have repeatedly and successfully accomplished the thing in question and have a strong track record with at least 3 success and have great explanations of their approach when probed

The Art of Thoughtful Disagreement

You goal is not to convince the other person that you’re right
- It’s to find out what’s true and decide what to do about it
- People are motivated by the genuine fear of missing important perspectives
- Exchanges should be about what the other person is seeing and them really trying to see what you are seeing with both high level “yous” trying to get to the truth. This is powerful.
- Use questions, not make statements
- Prioritize what you spend time on and who you spend it with
  - There are lots of people that disagree with you and unproductive to consider all their views
  - Explore ideas with most believable people you have access to
Triangulate your view with believable people who are willing to disagree
- Plan for the worst case
Recognize the signs of closed-mindedness and open-mindedness
- Surround yourself with open minded people.
  - A group of decision makers working together can significantly outperform a single decision maker working a lone.
- Closed minded people don’t want their ideas challenged. They are frustrated they can’t get others to agree instead of being curious as to why they disagree. More interested in being proven right than in asking questions
  - Open Minded people are more curious why there’s a disagreement. They understand that they might be wrong and it’s worth the time to consider other views in case they missed something
- Closed minded people more more statements than ask questions.
  - Open Minded people genuinely believe they could be wrong. The questions they ask are genuine.
  - They assess their relative believability to determine whether their primary role should be as a student, a teacher or a peer.
- Closed minded people focus on being understood than on understanding others. When there’s disagreement, they quickly assume that they aren’t being understood than to consider whether they’re not understanding other’s perspectives
  - Open Minded people feel compelled to see things through others’ eyes
- Closed minded people say “I could be wrong… but here’s my opinion”. If you say something like this, it should be followed by a question, not a statement
  - Open Minded people know when to make statements and when to ask questions
- Closed minded people block others from speaking — use 2 minute rule to get around blocking
  - Open Minded people are always more interested in listening than speaking. They encourage others to voice their views
- Closed minded people have trouble holding 2 thoughts and their own will crowd out the others
  - Open Minded people take in thoughts of others without losing ability to think well — they can go back and forth and assess their relative merits
- Closed minded people lack a sense of humility
  - Open Minded people approach everything with a deep fear that they may be wrong
Understand how you can become radically open-minded
- Regularly use pain as your guide toward quality reflection
  - Mental pain comes from being too attached to an idea when a person or event challenges it
  - Note the feeling of closed mindedness that arise in you. You can use them as cues to control your behaviour and guide yourself towards open mindedness
  - Doing this regularly will strengthen your ability to keep your higher level you in control. The more you do it, the stronger you will become
- Make being open-minded a habit
  - The life that you will live is simply the result of the habts you develop
  - If you consistently use feelings of anger/frustration as cues to calm down, slow down, and approach the subject thoughtfully, over time, you’ll experience negative emotions much less frequently and become more open minded
- Get to know your blind spots
  - When you are closed minded and form an opinion in your blind spot, it can be deadly
  - Take time to record circumstances in which you’ve consistently made bad decisions because you failed to see what others saw
  - Ask others — especially those who saw what you missed — to help you with this
  - Write a list, tack it up to the wall and stare at it
  - If you ever find yourself about to make a decision, even more if it’s a big one, in one of those areas without consulting others, understand that you’re taking a big risk
- Be evidence based and encourage others to be the same
- Use evidence based decision making tools
  - Machine thinking tools will develop and smart decision makers will integrate them into their thinking
- Know when it’s best to stop fighting and have faith in your decision making process

People Are Wired Differently

Understand the power that comes from knowing how you and others are wired
- Our differences aren’t a product of poor communication; it’s the other way around. Our different ways of thinking leads to poor communication
- Just as our physical attributes determine the limits of what we can do physically, our brains are innately different in ways that set the parameters of what we are able to do mentally
- Everyone is like a Lego set of attributes, with each piece reflecting the workings of a different part of their brain. All these pieces come together to determine what each person is like
We are born with attributes that can both help us and hurt us, depending on the application
- The more extreme the attribute, the more extreme the potential good or bad outcome
- A highly creative, goal oriented person good at imagining new ideas might undervalue the minutiae of daily life which is also important. He might be so driven in his pursuit of long-term goals that he might have disdain for people who focus on the details of daily life
- A task oriented person who is great with details might undervalue creativity and squelch it in the interests of efficiency
- Because the ways their minds work, it makes it difficult for them to see the value of each other’s ways of thinking
Have Baseball Cards
- Use a combination of adjectives to describe people:
  - Conceptual
  - Reliable
  - Creative
  - Determined
- The Actions People Take or Didn’t Take:
  - “Holding Others Accountable”
  - “Pushing Through to Results”
- Personality Tests:
  - Extroverted
  - Judging
- After the cards are established, have a process for people to evaluate each other, with the people rated highest in each dimension (e.g. most creative) have more weight on the ratings of other people in that dimension
- People with proven track records in certain area would get more believability/decision-making weight in that area
- By recording these qualities, people who never worked with each other knew what to expect from them
- Books:
  - An everyone culture
  - Incognito
  - Subliminal
  - The Meaning of Human Existence
  - The Spiritual Brain
  - Beyond Religion

The Brains Are Always Battling and How To Control Them

The conscious mind is in a battle with the subconscious mind — the two “yous”
- When people say things like “I feel that you were unfair with me” they’re typically messages originating in the emotional, subconscious parts of their brains
- Many people aren’t aware of benefits of connecting the subconscious mind and see only the conscious mind
  - They believe that to accomplish more is to cram more into the conscious mind and make it work harder but this is counterproductive
  - It seems counterintuitive but clearing your head is the best way to make progress
  - Because it’s physiological, I can actually feel the creative thoughts coming from elsewhere and flowing into my conscious mind.
- Many of our decision making drivers are below the surface. An animal doesn’t decide to fly or sleep or fight — it simply follows instructions that come from the subconscious parts of its brain
  - These come to us too — sometimes for good evolutionary reasons and sometimes to our detriment
    - Our subconscious fears and desires drive our motivations and actions through emotions such as love, fear, and inspiration.
      - It’s PHYSIOLOGICAL. Love is a cocktail of chemicals such as oxytocin secreted by the pituitary gland
  - “I just thought of something” — your subconscious mind is telling your conscious mind something
    - Meditation opens this stream of communication
  - When thoughts and instructions come to me from subconscious, rather than act on them immediately, get into the habit of examining them with conscious, logical mind.
    - Helps you figure out which thoughts are valid
    - Why you’re reacting to them as you do
    - Opens further communication between conscious and subconscious minds
    - It’s helpful to write down results of this process
  - Be aware of your subconscious — it can both help you and help you — and how by consciously reflecting on what comes out of it, you can become happier and more effective.
The most constant struggle is between feeling and thinking
- Feelings — amygdala, operates subconsciously
  - little almond-shaped structure that lies deeply embedded in the cerebrum is one of the most powerful parts of your brain. It controls your behaviour even though you’re not conscious of it
- Rational thinking — prefrontal cortex, operates consciously
Reconcile your feelings and thinking
- The biggest difference between people who guide their own personal evolution and achieve their goals and those who don’t is those who make progress reflect on what causes their amygdala hijackings
Choose Your Habits Well
- Habit is the most powerful tool in your brain’s toolbox
  - It’s driven by a golf ball sized lump of tissue called the basal ganglia at the base of the cerebrum
  - It’s so deep seated and instinctual that we’re not conscious of it though it controls our actions
  - If you do anything frequently enough over time, you will form a habit that will control you
  - Good habits are those that your upper level you wants
  - Bad habits are those that are controlled by the lower level you and is in the way of what your upper level you wants
  - Habit is essentially inertia, the strong tendency to keep doing what you have been doing (or not doing)
  - Research suggests if you stick with a behaviour for 18 months, you will build a strong tendency to stick to it nearly forever
  - Write down 3 most harmful habits
    - Pick one that you’re committed to breaking
    - Do all through and you will radically improve the trajectory of your life
  - Pick habits that you want to acquire
    - The most valuable habit is using pain to trigger quality reflections. If you can acquire this habit, you will learn what causes your pain and what you can do about it, and it will have an enormous impact on your effectiveness
  - The best way to change is through doing mental exercises
  - This can be painful unless you enlist the habit loop to connect the rewards to the actions
  - Rewire your brain to love learning and beneficial change
- Train your lower level you with loving kindness and persistence to build the right habits
- Understand difference between right brained and left brained thinking
  - Left brain reasons sequentially, analyzes details, and excels at linear analysis
    - The ones that are analytically strong are often called “bright”
  - Right brain thinks across categories, recognizes themes, and synthesizes the big picture
    - Lateral thinkers with more street smarts are often called “smart”
  - Left sees right as “spacey” or “abstract”. Right sees left as “literal” or “narrow”
- Understand how much the brain can and cannot change
  - Brain plasticity is what allows your brain to change its softwiring
  - An eight-week brain imaging study has shown that physical exercise to studying to meditation can lead to actual changes in the brain (physical and physiological) which affect our ability to think.
  - 10,000 hours of meditation led to significantly higher gamma waves in brains which are associated with perception and problem solving
  - You may be able to train yourself to be more creative but if you’re not naturally creative, there’s a limit to what you can do
    - This is simply reality and just accept it and deal with it
- Find Out What You And Others Are Really Like
  - Go here
- Shapers are People Who Can Go From Visualization to Actualization
  - Someone who comes up with unique and valuable visions and builds them out beautifully, over the doubts of others. Shapers get both the big picture and the details right.
  - Shaper = Visionary + Practical Thinker + Determined
  - Intense curiousity, compulsive need to make sense of things, independent thinking that verges on rebelliousness, a need to dream big and unconventionally, a practicality and determination to push through all obstacles to achieve their goals, and a knowledge of their own and others’ weaknesses and strengths so they can orchestrate teams to achieve them
  - Most importantly, hold conflicting thoughts simultaneously and look at them from different angles
  - They love to knock things around with really smart people and easily navigate back and forth between big picture and granular details, counting both as equally important
- Getting the Right People in the Right Roles in Support of your Goal is the KEY to Succeeding at Whatever You Choose To Accomplish
  - Manage yourself and orchestrate others to get what you want
    - The person in charge is the shape conductor who doesn’t “do” (e.g. doesn’t play an instrument, though he or she knows a lot about instruments) as much as visualize the outcome and sees to it that each member of the orchestra helps achieve it
    - The conductor makes sure each member of the orchestra knows what he or she is good at and what they’re not good at, and what their responsibilities are
    - Each must not only perform at their personal best but work together so the orchestra becomes more than the sum of its parts
    - One of the conductor’s hardest and most thankless jobs is getting rid of people who consistently don’t play well individually or with others
    - Most important, the conductor ensures that the score is executed exactly as he or she hears it in his head
    - Each section of the orchestra has its own leads who also help bring out the composer’s and the conductor’s visions

Learn How to Make Decisions Effectively

Recognize that 1. the biggest threat to good decision making is harmful emotions, and 2. decision making is a 2-step process — learn, then decide

LEARNING

It’s important that what you paint is true and a rich picture of reality that will affect your decision. That’s why it’s good to be radically open-minded and seek out believable others
People have emotional trouble doing this and block the learning that could help them make better decisions
Getting an accurate picture of reality comes down to two things:
1. Being able to synthesize accurately
  1. This is the process of converting a lot of data into an accurate picture
  2. The quality of your synthesis will determine the quality of your decision making
  3. Good idea to triangulate your views with people who you know synthesize well — this raises your chances of having a good synthesis
  4. To synthesize well:
    1. Synthesize the situation at hand
      1. An important decision you make is who you ask questions of
        Make sure they’re fully informed and believable. Listening to uninformed people is worse than having no answers at all
        Don’t believe everything you hear — Don’t mistake opinions for facts.
        Everything looks bigger up close — step back to gain perspective and defer decision until some time passes
        New is overvalued relative to great
        Don’t oversqueeze dots
    2. Synthesize the situation through time
      1. See below for example.
      2. Keep in mind both the rates of change and the level of things, and the relationships between them

(Synthesize the situation through time)

To see how the dots connect through time, you must collect, analyze, and sort different types of information, which isn’t easy.
Example
Let’s say that you’re running an ice cream shop and that:
W: SalesX: Customer experience ratingsY: Press and reviewsZ: Staff engagements

Be imprecise
1. Use concepts of “by and large” and approximations
2. Educational system is hung up on precision, approximations are undervalued
Remember the 80/20 rule and what the key 20 percent is — don’t get bogged down in necessary details
Be an imperfectionist
1. Perfectionists spec too much time on little differences at the margins at the expense of important things
2. There are typically 5-10 important factors to consider when making a decision — it’s important to understand these really well. The marginal gain of studying even the important things past a certain point is limited
Navigate levels effectively
1. We are constantly seeing things at different levels and navigating between them, whether we know it or not
  1. You can navigate levels to move from your values to what you do to realize them on a day to day basis
  2. The high level big picture:

The high level big picture: I want meaningful work that’s full of learning

1.1 Subordinate Concept: I want to be a doctor

Sub-Point: I need to go to medical school
1. Sub-Sub Point: I need to get good grades in the sciences
  1. Sub-Sub-Sub Point: I need to stay home tonight and study

To observe how well you do this in your ow life, pay attention to your conversations. We tend to move between levels when we talk

Use the terms “above the line” and “below the line” to establish which level a conversation is on
1. Above the line: addresses the main points
2. Below the line: focuses on sub-points
3. When a line of reasoning is jumbled and confusing, it’s because the speaker has gotten caught up in below the line details without connecting them back to the major points
4. An above the line conversation should progress in an orderly and accurate way to its conclusion, oly going below the line when necessary to illustrate something about one of the major points
Decisions need to be made at the appropriate level and should also be consistent across levels

Multiple levels exist for all subjects
Be aware on what level you’re examining a subject
Consciously navigate levels rather than see subjects as undifferentiated piles of facts that can be browsed randomly
Diagram the flow of your thought processes using the outline template shown above

DECIDING

Choosing which knowledge should be drawn upon
The “what is” and your broad understanding of the cause-effect machinery that underlies it and then weighing them to determine course of action
This involves playing different scenarios through time to visualize how to get an outcome consistent with what you want
1. To this well, you need to weigh first order sequences against second- and third-order sequences, and base your decisions not just on near-term results but on results over time
2. Failing to consider 2nd and 3rd order consequences is the cause of a lot of bad decisions
Never seize on the first available option
1. No matter how good it may seem, ask the questions first and explore
  1. “Am I learning?”
  2. “Have I learned enough yet that it’s time for deciding?
2. By doing this, you avoid the first pitfall of bad decision making, which is to subconsciously make the decision first and then cherry-pick the data that supports it — confirmation bias.
Logic, reason, and common sense are your best tools for synthesizing reality and understanding what to do about it
1. Carl Jung: Until you make the unconscious conscious, it will direct your life and you will call it fate
2. Successful organizations have cultures in which evidence-based decision making is the norm, not the exception
Make your decisions as expected value calculations
1. Think of every decision as a bet with a probability and a reward for being right and a probability and penalty for being wrong. Let’s say being right means $100 and 60% probability and wrong is $100. That means that expected value is positive (+$20)
  1. Once you understand this, you understand that it’s not always best to bet on what’s most probably
  2. For example, suppose there’s a 1/5 chance of returning 10 times ($1000) the amount it will cost you if it fails ($100). Its expected value is positive ($120). It’s a smart decision as long as you can also cover the loss as playing these probabilities over and over again will give you winning results over time.
  3. Sometimes it’s smart to take a chance even when the odds are overwhelmingly against you if the cost of being wrong is negligible relative to the reward.
    1. e.g. “It never hurts to ask”
2. Raising the probability of being right is valuable no matter what your probability of being right already is
  1. Think of the probability as a measure of how often you’re likely to be wrong. Raising the probability of being right by 34% from 51% to 85% means that a third of your bets will switch from losses to wins.
  2. This is why it pays to stress test your thinking even when you’re sure you’re right
3. Knowing when not to bet is as important as knowing what bets are probably worth making
  1. Significantly improves your track record if you only make bets that you are most confident will pay off
4. The best choices are the ones that have more pros than cons, not those that don’t have any cons at all
  1. Watch out for people who argue against something whenever they can find something, anything, wrong with it, without weighing all the plus and minus. Such people are poor decision makers.
Prioritize by weighing the value of additional information against the cost of not deciding
1. Separate your must dos from your like to dos and make sure the like to dos don’t make it onto the first list
2. You won’t have time to deal with unimportant things, which is better than not having time to deal with important things
3. Don’t mistake possibilities for probabilities
  1. Anything’s possible. It’s the probabilities that matter. Everything must be weight in terms of likelihood and prioritized
  2. People who can accurately sort probabilities from possibilities are generally strong at practical thinking. They’re the opposite of philosopher types who tend to get lost in cloud of possibilities

Shortcuts for Becoming a Great Decision Maker

Simplify
1. Get rid of irrelevant details so that the essential things and relationship between them stands out
Use Principles
1. Almost all “cases at hand” are just “another one of those”. Identify which ones of those it is and then apply the well thought out principles for dealing with it. This will massively reduce the number of decisions you have to make. Keys to doing this well:
  1. Slow down your thinking so you can note the criteria you’re using to make your decision
  2. Write the criteria down as a principle
  3. Think about those criteria when you have an outcome to assess, and refine them before the next “one of those” comes along
2. Identifying which one of those is like identifying which species an animal is. It becomes like playing a game
3. Many cases at hand are hybrids. When a case at hand includes a few another one of those, one must weigh different principles against each other, using mental maps of how the different types of things I encounter should be handled. Tool called “Coach” to help
4. Systemized Computerized Decision Making
  1. We use our systems much as a driver uses a GPS in a car — not to substitute for our navigational abilities but to supplement them
5. Be cautious about trusting AI without having a deep understanding
  1. Expert Systems, Mimicking, and Data Mining

Work Principles

For any group or organization to function well, its work principles must be aligned with its members’ life principles.
An organization is a machine consisting of two major parts: culture and people

A great organization has both great people and a great culture
Great people have both great character and great capabilities
- Character: Radically truthful, transparent and deeply committed to the mission of the organization.
- Capabilities: Abilities and skills to do jobs excellently
- People that have one without the other are dangerous and should be removed. People who have both are rare and should be treasured
Great cultures being problems and disagreements to the surface and solve the well, and they love imagining and building great things that haven’t been built before

Progress Looping

Have Clear Goals
Identify the problems preventing the goals from being achieved
Diagnose what parts of the machine (which people or which design) are not working well
Designing Changes
Doing what’s needed

A manager’s ability to recognize when outcomes are inconsistent with goals and then modify designs and assemble people to rectify them makes all the difference in the world. The more often and more effectively a manager does this, the steeper the upward trajectory
Great Partnerships
These come from sharing common values and interests, having similar approaches to pursuing them, and being reasonable, and considerate for each other.
They must be willing to hold each other to high standards and work through their disagreements
The main test of a great partnership is not whether the partners ever disagree — but whether they can bring their disagreements to the surface and get through them well

Having clear processes for resolving disagreements efficiently and clearly is essential for business partnerships, marriages, and all forms of partnerships
Up until 67 employees, Ray was choosing holiday gift and wrote length personalized card

Tough Love is effective for achieving both great work and great relationships

In order to be great, one can’t compromise the uncompromisable
- People do this all the time to avoid make others or themselves feel uncomfortable which is backwards and counter productive. Putting comfort ahead of success produces worse results for everyone
Think of Vince Lombardi
Letter Ray wrote:
- Bridgewater is not about plodding along at some kind of moderate standard, it is about working like hell to achieve a standard that is extraordinarily high, and then getting the satisfaction that comes along with that sort of super achievement.
- Our overriding objective is excellence, or more precisely, constant improvement, a superb and constantly improving company in all respects.
- Conflict in the pursuit of excellence is a terrific thing. There should be no hierarchy based on age or seniority. Power should lie in the reasoning, not the position, of the individual. The best ideas win no matter who they come from.
- Criticism(by oneself and by others) is an essential ingredient in the improvement process, yet, if handled incorrectly, can be destructive. It should be handled objectively. There should be no hierarchy in the giving or receiving of criticism.
- Teamwork and team spirit are essential, including intolerance of substandard performance. This is referring to 1) one’s recognition of the responsibilities one has to help the team achieve its common goals and 2) the willingness to help others(work within a group) toward these common goals. Our fates are intertwined. One should know that others can be relied upon to help.

A Believability Weighted Idea Meritocracy is the Best System for Making Effective Decisions
Make Your Passion and Your Work One and the Same and Do It With the People You Want to Be With

To Get The Right Culture

Trust in Radical Truth and Radical Transparency

It is a fundamental law of nature that you get stronger only by doing difficult things-RD

There is no worse course in leadership than to hold out false hopes soon to be swept away — Churchill

Realize that you have nothing to fear from knowing the truth
Have integrity and demand it from others

Aligning what you say with what you think and what you think with what you feel will make you much happier and much more successful. Thinking solely about what’s accurate instead of how it is perceived pushes you to focus on the most important things

Never say anything about someone that you wouldn’t say to them directly and don’t try people without accusing them to their faces
Don’t let loyalty to people stand in the way of truth and the well-being of the organization

Create an Environment in which Everyone has the Right to Understand What Makes Sense and No One has the Right to Hold a Critical Opinion Without Speaking Up
1. Speak up, own it, or get out
2. Be extremely open — it’s simple, just don’t filter.
3. Don’t be naive about dishonesty — dishonest people are everywhere and they are dangerous.
Be radically transparent
1. Use transparency to help enforce justice
2. Share the things that are hardest to share
3. Keep exceptions to radical transparency very rare
  1. Where information is of private, personal or confidential nature and doesn’t meaningfully impact the community at large
  2. Where sharing and managing such information puts the long term interests at risk
  3. Where the value of sharing the information broadly with the community is very low and the distraction it would cause very significant (e.g. salary)
4. Make sure those that are given radical transparency recognize their responsibilities to handle it well and to weigh things intelligently
5. Provide transparency to people who handle it well and deny it to people who don’t or remove them
6. Don’t share sensitive information with the organization’s enemies
Meaningful relationships and meaningful work are mutually reinforcing, especially when supported by radical truth and radical transparency

Cultivate Meaningful Work and Meaningful Relationships

Be loyal to the common mission and not to anyone who is not operating consistently with it
Be crystal clear on what the deal is
1. I’ve made a lot of money through my work, but I see my job as much more than as a way to make money — it’s how I choose to live out my values around excellence, meaningful work, and meaningful relationships. If the people I worked with were primarily interested in making money, we would have conflicts whenever we had to choose between upholding our values and making an easy buck
2. Make sure people give more consideration to others than they demand for themselves
3. Make sure that people understand the difference between fairness and generosity
  1. Generosity is good and entitlement is bad, so be crystal clear.
4. Know where the line is and be on the far side of fair. If each party says “you deserve more” vs “I deserve more” you are likely to have generous, good relationships.
5. Pay for work
Recognize that the size of the organization can pose a threat to meaningful relationships
Remember that most people will pretend to operate in your interest while operating in their own
Treasure honorable people who are capable and will treat you well even when you’re not looking. They are rare and can only be built if you treat such people well

Create a Culture in Which It Is Okay to Make Mistakes and Unacceptable Not To Learn From Them

I have not failed. I’ve just found ten thousand ways that do not work -Thomas Edison
Mistakes will cause you pain, but you shouldn’t try to shield yourself or others from it. Pain is a message that something is wrong and it’s an effective teacher that one shouldn’t do that wrong thing again. To deal with your own and others’ weaknesses well you must acknowledge them frankly and open and work to find ways of preventing them from hurting you in the future.
In managing people who make mistakes, it’s important to know the difference between:

Capable people who made mistakes and are self-reflective and open to learning from them, and;
Incapable people, or capable people who aren’t able to embrace their mistakes and learn from them

Over time, I’ve found that hiring self reflective people is one of the most important things that I can do.
Finding this kind of person isn’t easy. I’ve often thought that parents and schools overemphasize the value of having the right answers all the time. It seems to me the best students in school tend to be the worst at learning from their mistakes, because they have been conditioned to associate mistakes with failure instead of opportunity. This is a major impediment to their progress. Intelligent people who embrace their mistakes and weaknesses substantially outperform their peers who have the same abilities but bigger ego barriers.

Recognize that mistakes are a natural part of the evolutionary process
1. You have to have a willingness to repeatedly fail. If you don’t have a willingness to fail, you’re going to have to be very careful not to invent–Jeff Bezos
2. Fail well. Failing is a painful experience while succeeding is a joyous one. It requires much more character to fail, change, and then succeed than to just succeed.
3. Don’t feel bad about your mistakes or those of others. Love them!
  1. Michael Jordan reveled in his mistakes. He understood that each mistake are like little puzzles when you solve them give you a gem. Every mistake that you make and learn from will save you from thousands of similar mistakes in the future.
Don’t worry about looking good — worry about achieving your goals
1. Put insecurities away and get on with achieving your goals. Reflect and remind yourself that an accurate criticism is the most valuable feedback you can receive.
2. Get over ”blame” and ”credit” and get on with ”accurate” and “inaccurate”
Observe the patterns of mistakes to see if they are products of weaknesses
1. The fastest path to success starts with knowing what your weaknesses are and staring hard at them. Start by writing down your mistakes and connecting the dots between them. Then write down your “one big challenge,” the weakness that stands the most in the way of getting in the way of what you want. Don’t go beyond 3. The first step is getting them out into the open
Remember to reflect when you experience pain
1. THE PAIN IS ALL IN YOUR HEAD
  1. Reflecting on them and resolving them will give you wisdom. The harder the pain and challenge, the better.
  2. Because these moments of pain are so important, you shouldn’t rush through them. Stay in them and explore them so you can build a foundation for improvement. Embracing your failures– and confronting the pain they cause you and others — is the first step toward genuine improvement.
2. Be self reflective and make sure your people are self reflective
  1. When there’s pain, the animal instinct is flight or fight. Calm yourself down and reflect instead. Self reflectiveness is the quality that most differentiates those who evolve quickly from those who don’t. PAIN + REFLECTION = PROGRESS
3. Know that nobody can see themselves objectively
  1. For this reason, it is everyone’s responsibility to help others learn what is true about themselves by giving them honest feedback, holding them accountable, and working through disagreements in an open minded way.
4. Teach and reinforce the merits of mistake based learning
Know what types of mistakes are acceptable and what types are unacceptable, and don’t allow people who work for you to make the unacceptable ones

Get and Stay in Sync

For an org to be effective, people must be aligned on many levels — their shared mission, how they treat each other, to who will do what when to achieve their goals.
People who suppress minor conflicts tend to have much bigger conflicts later on, which can lead to separation, while people who address their mini conflicts head on tend to have the best and longest lasting relationships.
Every party to the discussion must understand who has what rights and which procedures should be followed to move toward resolution.

Recognize that conflicts are essential for great relationships
1. Because they are how people determine whether their principles are aligned and resolve their differences
2. Spend lavishly on the time and energy you devote to getting in sync, because it’s the best investment you can make
  1. You need to prioritize what you are going to get in sync about and who you are going to get in sync with because of time constraints
  2. Your highest priority should be the most important issues with the most believable and most relevant parties
Know how to get in sync and disagree well
1. The key is in knowing how to move from disagreement to decision making. The path for doing this should be clear so that who is responsible for doing what is known. It is essential to know where the ultimate decision making authority lies
2. Surface areas of possible out of syncness
  1. List the disagreements in priority as well as bringing them up informally
    1. The nubbiest questions where there’s most disagreement is the most important ones to thrash out as they often concern differences in people’s values or their approaches to important decisions
  2. Distinguish between idle complaints and complaints meant to lead to improvement
  3. Remember that every story has another side
Be open-minded and assertive at the same time
1. Open minded — seeing things through the other’s eyes. Assertive — communicating clearly how things look through your eyes
2. Distinguish open-minded people from closed-minded people
3. Don’t have anything to do with closed-minded people
4. Watch out for people who think it’s embarrassing not to know
5. Make sure that those in charge are open-minded about the questions and comments of others
6. Recognize that getting in sync is a 2-way responsibility
  1. Responsibility to express and responsibility to listen
7. Worry more about substance than style
8. Be reasonable and expect others to be reasonable
9. Making suggestions and questioning are not the same as criticizing, so don’t treat them as if they are
If it is your meeting to run, manage the conversation
1. Make it clear who is directing the meeting and whom it is meant to serve
2. Be precise in what you’re talking about to avoid confusion
3. Make clear what type of communication you are going to have in light of the objectives and priorities
4. Lead the discussion by being assertive and open-minded
5. Navigate between the different levels of the conversation
6. Watch out for topic slip — use a whiteboard
7. Enforce the logic of conversations
8. Be careful not to lose personal responsibility via group decision making
9. Utilize the “two minute rule” to avoid persistent interruptions
10. Watch out for assertive fast talkers
11. Achieve completion in conversations
  1. Conversations that fail to reach completion are a waste of time
  2. When there is an exchange of ideas, it is important to end it by stating the conclusions
  3. If there is an agreement, say it. If not, say that.
  4. Where further action has been decided, get those tasks on a to-do list, assign people to do them, and specify due dates. Write down your conclusions, working theories, and to-do’s in places that will lead to their being used as foundations for continued progress
  5. Assign someone to make sure notes are taken and follow through occurs
12. Leverage your communication
  1. Identify easy ways of sharing like open emails posted on an FAQ board or sending videotapes or audio recordings of key meetings
Great collaboration feels like playing jazz
1. 1+1=3
2. 3 to 5 > 20
When you have alignment cherish it
If you can’t reconcile major differences — especially in values — consider whether the relationship is worth preserving

Believability Weight Your Decision Making

Recognize that having an effective idea meritocracy requires that you understand the merit of each person’s ideas
1. If you can’t successfully do something don’t think you can tell others how it should be done
2. Remember that everyone has opinions and they are often bad
Find the most believable people possible who disagree with you and try to understand their reasoning
1. Think about people’s believability in order to assess the likelihood that their opinions are good. While it pays to be open-minded, you also have to be discerning. Remember that the quality of the life you get will depend largely on the quality of the decisions that you make as you pursue your goals
2. Remember that believable opinions are most likely to come from people 1) who have successfully accomplished the thing in question at least 3 times, and 2) who have great explanations of the cause-effect relationships that lead them to their conclusions
  1. Neither — not believable. One — somewhat believable. Two — most believable
3. If someone hasn’t done something but has a theory that seems logical and can be stress-tested, then by all means test it
4. Don’t pay as much attention to people’s conclusions as to the reasoning that led them to their conclusions
5. Inexperienced people can have great ideas too, sometimes far better ones than more experienced people
6. Everyone should be upfront in expressing how confident they are in their thoughts
Think about whether you are playing the role of a teacher, a student, or a peer
1. And whether you should be teaching, asking questions, or debating. It’s important to get the balance between your assertiveness and your open-mindedness right, based on your relative levels of understanding of the subject
2. It’s more important that the student understand the teacher than that the teacher understand the student, though both are important
3. Recognize that while everyone has the right and responsibility to try to make sense of important things, they must do so with humility and radical open mindedness
Understand how people came by their opinions
1. Our brains work like computers. They input data and process it in accordance with their wiring and programming. Any opinion you have is made up of the 2 things: the data and your processing or reasoning. When someone says “I believe X” ask them: What data are you looking at? What reasoning are you using to draw your conclusion?
2. If you ask someone a question, they will probably give you an answer, so think through to whom you should address your questions
3. Having everyone randomly probe everyone else is an unproductive waste of time
4. Beware of statements that begin with “I think that…”
5. Assess believability by systematically capturing people’s track records over time
  1. People’s track records matter
Disagreeing must be done efficiently
1. Know when to stop debating and move on to agreeing about what should be done
2. Use believability weighting as a tool rather than a substitute for decision making by Responsible Parties
3. Since you don’t have the time to thoroughly examine everyone’s thinking yourself, choose your believable people wisely — generally 3
4. When you’re responsible for a decision, compare the believability weighted decision making of the crowd to what you believe.
Recognize that everyone has the right and responsibility to try to make sense of important things
1. “Let’s agree that I am a dumb shit but I still need to make sense of this, so let’s move slowly to make sure that happens”
2. Communications aimed at getting the best answer should involve the most relevant people
3. Communication aimed at educating or boosting cohesion should involve a broader set of people than would be needed if the aim were just getting the best answer
4. Recognize that you don’t need to make judgements about everything
Pay more attention to whether the decision-making system is fair than whether you get your way
1. An organization’s morale and smooth functioning should always take precedence over your need to be right

Recognize How To Get Beyond Disagreements

Principles can’t be ignored by mutual agreement
1. The same standards of behavior apply to everyone
Make sure people don’t confuse the right to complain, give advice and openly debate with the right to make decisions
1. When challenging a decision and/or a decision maker, consider the broader context/larger vision
Don’t leave important conflicts unresolved
1. It’s easier to avoid confrontations but the consequences are massively destructive in the long term. Don’t go for superficial compromise, but through seeking important, accurate conclusions and the process should be made transparent and relevant to others
2. Don’t let little things divide you when big things should bind you. “The narcissism of small differences”
3. Don’t get stuck in disagreement — escalate or vote!
Once a decision is made, everyone should get behind even if individuals disagree
1. See things from the higher level
2. Never allow the idea meritocracy to slip into anarchy
3. Don’t allow lynch mobs or mob rule
If the idea meritocracy comes into conflict with the well being of the organization, it will inevitably suffer
1. Declare “martial law” only in rare or extreme circumstances when the principles need to be suspended
2. Be way of people who argue for suspension for “good of organization”
If the people who have the power don’t want to operate by principles, the principled way of operating will fail

To Get The People Right

Steve Jobs “The secret to my success is that we’ve gone to exceptional lengths to hire the best people in the world”
Remember that the WHO is More Important than the WHAT!
If you choose the right people with the right values and remain in sync with them, you will place beautiful jazz together.
The ability to objectively self-assess, including one’s own weaknesses, is the most influential factor in whether a person succeeds, and that a healthy organization is one in which people compete not so much against each other as against the ways in which their lower selves get in the way.

Remember that the WHO is more important than the What

To be truly successful, I need to be like a conductor of people, many of whom can play their instruments better than I can and ultimately a conductor better than me. My ultimate goal is to create a machine that works so well that I can just sit back and watch beauty happen.
It is vital to remember how important the selection, training, testing, evaluation, and sorting out of people is.

Remember the goal
Give the goal to people who can achieve it (best) or tell them what to do to achieve it
Hold them accountable
If they still can’t do the job after you’ve trained them and given them time to learn, get rid of them

Recognize that the most important decision for you to make is who you choose as your Responsible Parties
1. If you put goals in the hands of RPs who can execute those goals well, and if you can make it clear to them that they are personally responsible for achieving those goals and doing the tasks, they should product excellent results
2. Understand that the most important RPs are those responsible for the goals, outcomes, and machines at the highest levels
  1. Give me someone who can be responsible for an entire area — someone who can design, hire, and sort to achieve the goal and I can be comfortable things will go well. They must be capable of higher level thinking, and understand the difference between goals and tasks — otherwise you will have to do their jobs for them. The ability to see and value goals is largely innate and it can be tested for
Know that the ultimate Responsible Party will be the person who bears the consequences of what is done
1. Make sure that everyone has someone they report to
Remember the force behind the thing
1. Forces were specific people with specific qualities who worked in specific ways. Change the people and you change how things develop; replace creators with non-creators and you stop having creations

Hire Right, Because the Penalties for Hiring Wrong Are Huge

Those of us who were linear thinkers tended to want to hire linear thinkers; lateral hired lateral thinkers
Improve hiring by:

Always being crisp and clear on exactly what kind of person we were looking for
Developing our vocabulary for and means of evaluating people’s abilities at a much more granular level

At a high level, we look for people who think independently, argue open-mindedly and assertively, and above all else value the intense pursuit of truth and excellence, and through it, the rapid improvement of themselves and the organization. We look for people who are considerate, have a high sense of personal accountability to do the difficult, right things, with generous natures and high standards of fairness. They must be able to put their egos aside and assess themselves candidly.
The most important thing you can do is understand that hiring is a high risk gamble that needs to be approached deliberately. A lot of time, effort, and resources go into hiring and developing new employees before it’s clear whether or not they are good fits.

Match the person to the design
1. When building a machine, design precedes people because the type of people you will need will depend on the design. As you design, create a clear mental image of the attributes required for each person to do their job well.

In order to match a person to the design, start by creating a spec sheet so there will be a consistent set of criteria that can be applied from recruiting through to performance reviews.

Don’t design jobs to fit people. Over time, this always turns out to be a mistake. This often happens when someone you are reluctant to let go doesn’t work out and you want to find out what else that person can do

Think through which values, abilities, and skills you are looking for (in that order)
1. Values are deep-seated beliefs that motivate behaviors an determine people’s compatibilities with each other
2. Abilities are ways of thinking and behaving. Some people are great learners, others see things are a higher level, others focus on particulars, others think creatively or logically or with supreme organization.
3. Skills are learned tools such as speaking a foreign language or write computer code.
4. While values and abilities are unlikely to change much, most skills can be acquired in a limited amount of time. It is important for you to know what mix of qualities is important to fit each role and more broadly what values and abilities are required in people with whom you can have successful relationships.
5. For long term relationships, values are the most important, abilities come next, and skills are the least important. Yet most people make the mistake of choosing skills and abilities first and overlooking values. We value people most who have the three C’s: character, common sense, and creativity. Bridgewater: meaningful work, meaningful relationships, radical truth and radical transparency, an open minded willingness to explore harsh realities including one’s own weaknesses, a sense of ownership, a drive for excellence, and the willingness to the do good but difficult things, we look for highly capable people who deeply want all of those things
Make finding the right people systematic and scientific
1. Have a people hiring machine in which the goals are clearly stated so that the outcomes can be compared with them and the machine (the design and the people) produce the outcomes can evolve to improve
2. Think through what questions are asked and how different answers candidates give differentiate them in ways you are seeking to differentiate them. Save all of those answers so you can learn about how indicative they might be of subsequent behaviors and performance.
Hear the click: Find the right fit between the role and the person.
1. The goal is to put the right people in the right design. First understand the responsibilities of the role and the qualities needed to fulfill them, then ascertain whether an individual has them. When you’re doing this well, there should be almost an audible “click” as the person you’re hiring fits in to his role.
Look for people who sparkle, not just “any ol’ one of those”
1. When reviewing any candidate’s background, you must identify whether they have demonstrated themselves to be extraordinary in some way. If you’re less than excited to hire someone for a particular job, don’t do it
Don’t use your pull to get someone a job

Remember that people are built very differently and that different ways of seeing and thinking makes people suitable for different jobs
1. E.g. extrovert for sales jobs
2. Understand how to use and interpret personality assessments → good for finding people’s abilities, preferences, and style
3. Remember that people tend to pick people like themselves, so choose interviewers who can identify what you are looking for
  1. If you’re looking for a visionary, pick a visionary to do the interview in which you probe for vision. If you’re looking for a mix of qualities, assemble a group of interviewers who embody those qualities collectively.
4. Look for people who are willing to look at themselves objectively
5. Remember that people typically don’t change all that much
Think of your teams the way that sports managers do: No one person possesses everything required to produce success, yet everyone must excel
Pay attention to people’s track records
1. Do they have a track record of excellence in what you’re expecting them to do?
2. Have they done the thing you want them to do successfully at least 3 times?
3. Check references
4. Recognize that performance in school doesn’t tell you much about whether a person has the values and abilities you are looking for
  1. They are excellent gauge of memory and processing speed
  2. But not common sense, vision, creativity, decision making abilities
5. While it’s best to have great conceptual thinkers, understand that great experience and a great track record also count for a lot
6. Beware of the impractical idealist
  1. Idealistic people who have moralistic notions about how people should behave without understanding how people really do behave do more harm than good. They are dangerous and destructive, whereas practical idealists make the world a better place
7. Don’t assume that a person who has been successful elsewhere will be successful in the job you’re giving them
  1. No matter how good you are at hiring, some of your hires just won’t work out
8. Make sure your people have character and are capable
Don’t hire people just to fit the first job they will do; hire people you want to share your life with
1. Look for people who have lots of great questions. Smart people are the ones who ask the most thoughtful questions as opposed to thinking they have all the answers. Great questions are a much better indicator of future success than great answers
2. Show candidates your warts.
  1. Show your job prospects the real picture, especially the bad stuff. Show them the principles in action, including the most difficult aspects. This way you stress test their willingness to endure real challenges
3. Play jazz with people with whom you are compatible but who will also challenge you
When considering compensation, provide both stability and opportunity
1. Pay for the person, not the job
  1. Look at what people in comparable jobs with comparable experience and credentials make, add some small premium on top, and build in bonuses or other incentives
2. Have performance metrics tied at least loosely to compensation
3. Pay north of fair
4. Focus more on making the pie bigger than on exactly how to slice it so that you or anyone else gets the biggest piece “You should take more” “No you should take more!”
Remember that in great partnerships, consideration and generosity are more important than money
1. Some people respond to generosity while others respond to money. You want the first type, and you always want to treat them generously.
2. Be generous and expect generosity from others
Great people are hard to find so make sure you think about how to keep them

Constantly Train, Test, Evaluate, and Sort People

As people get better and better, they’re more able to think independently, probe, and help you refine your machine. The faster they evolve, the faster your outcomes will improve.
Even as you help people develop, you must constantly assess whether they are able to fulfill their responsibilities excellently.
Every leader must decide between 1) Getting rid of liked but incapable people to achieve their goals and 2) keeping the nice but incapable people and not achieving their goals. Whether or not you can make these hard decisions is the strongest determinant of your own success or failure.

Understand that you and the people you manage will go through a process of personal evolution
1. No one is exempt from this process.
2. Recognize that personal evolution should be relatively rapid and a natural consequence of discovering one’s strengths and weaknesses.
  1. As a result, career paths are not planned at the outset. It typically takes 6-12 months to get to know a new employee and 18 months for them to internalize and adapt to the culture. During this time, there should be periodic mini-reviews and several major ones. Following each of these assessments, new assignments should be made that are tailored to their likes and dislikes and strengths and weaknesses. This is an iterative process, in which the accumulated experiences of training, testing, and adjusting direct the person to ever more suitable roles and responsibilities.
3. Understand that training guides the process of personal evolution
4. Teach your people to fish rather than give them fish, even if that means letting them make some mistakes
  1. Sometimes you need to stand by and let someone make a mistake (provided it’s not too serious) so they can learn. It’s a bad sign if you’re constantly telling people what they should do; micromanagement typically reflects inability on the part of the person being managed
5. Recognize that experience creates internalized learning that book learning can’t replace
Provide constant feedback
1. Feedback should reflect what is succeeding and what is not in proportion to the actual situation, rather than in an attempt to balance compliments and criticisms. Remember that you are responsible for achieving your goals, and you want your machine to function as intended.
Evaluate accurately, not kindly
1. In the end, accuracy and kindness are the same thing
2. Put your compliments and criticisms in perspective
3. Think about accuracy, not implications
4. Make accurate assessments
  1. Speak frankly, listen with an open mind, consider the views of other believable and honest people, and try to get in sync about what’s going on with the person and why
  2. Remember not to be overconfident in your assessments as it’s possible you’re wrong
5. Learn from success as well as from failure
6. Know that most everyone thinks that what they did, and they are doing, is much more important than it really is
Recognize that tough love is both the hardest and the most important type of love to give (because it is so rarely welcomed)
1. Giving people the opportunity to struggle rather than giving them the things they are struggling for will make them stronger
2. Recognize that while most people prefer compliments, accurate criticism is more valuable
Don’t hide your observations about people
1. Build your synthesis from the specifics up
  1. By synthesizing, this means converting a lot of data into an accurate picture. Too many people make assessments of people without connecting them to specific data
2. Squeeze the dots
  1. Every observation of a person potentially tells you something valuable about how they operate. These are”dots” — a judgement about what someone might have decided, said, or thought. Most of the time, we make these inferences and judgments implicitly and keep them to ourselves, but once they are collected systematically and put into perspective, they can be extremely valuable when it’s time to step back and synthesize the picture of a person
3. Don’t oversqueeze a dot
  1. A dot is just a dot. Think of each individual dot as an at-bat in baseball. Even great hitters are going to strike out many times which is why on-base percentage and batting average exist.
  2. Any ONE event has many different possible explanations, whereas a pattern of behavior can tell you a lot about root causes. The number of dots needed to detect a pattern depends on how well you sync. A quality discussion of how and why a person behaved a certain way should help you understand the larger picture.
4. Use evaluation tools such as performance surveys, metrics, and formal reviews to document all aspects of a person’s performance.
  1. It’s hard to have objective open minded conversation about performance if there’s no data to discuss. You can have people note whether they did or didn’t do things on checklists, note the percentage of tasks they completed. Metrics tell us whether things are going to plan.
Make the process of learning what someone is like open, evolutionary, and iterative
1. Make your metrics clear and impartial
  1. Have a clear set of rules and a clear set of metrics to track how people are performing against those rules. Having metrics that allow everyone to see everyone else’s track record will make evaluation more objective and fair.
2. Encourage people to be objectively reflective about their performance
3. Look at the whole picture
  1. In reviewing someone, the goal is to see the patterns and understand the whole picture. Assessments made in reviews must be concrete they’re not about what people should be like but what they ARE like
4. For performance reviews, start from specific cases, look for patterns, and get in sync with the person being reviewed by looking at the evidence together
  1. Feedback should be constant, reviews periodic. Purpose is to bring accumulated evidence of what a person is like re job performance
  2. A review should contain few surprises because you continuously are striving to make sense of how the person is doing their job. If you think their job is being done badly, you should have been probing to identify and address the root causes of their underperformance on a case by case basis.
  3. If there are performance issues, it is either because of design problems (e.g. too many responsibilities) or fit/abilities which is the person’s innate weaknesses in doing that job or because of inadequate training.
  4. A good review should get at these things. Set assessment relative to the absolute bar, not just progress over time. What matters is not just outcomes but how responsibilities were handled.
5. The biggest mistakes you can make in assessing people is being overconfident in your assessment and failing to get in sync on it. If you believe in something, it’s your responsibility to make sure it’s true and that the person you’re assessing agrees.
6. Get in sync on assessments in a nonhierarchical way.
  1. Your reports have to believe that you’re not their enemy. Your sole goal is to move toward the truth.
7. Learn about your people and have them learn about you through frank conversations about mistakes and their root causes
8. Understand that making sure people are doing a good job doesn’t require watching everything that everybody is doing at all times
  1. Just get a sampling. Select which actions are critical enough to need preapproval and which can be examined later. Be sure to do the audit because people will give themselves too much slack or could cheat when they see they’re not being checked
9. Recognize that change is difficult
  1. Anything that requires change can be difficult. When facing change, ask yourself:
  2. Am I being open-minded? Or am I being resistant?
10. Help people through the pain that comes with exploring their weaknesses.
  1. Speak in a calm, slow and analytical manner to facilitate communication. Pain is the pain that comes with learning and personal evolution and knowing the truth will put them on the path to a much better place. Ask them to go away and reflect when they are calm, and have a follow up conversation a few days later.
Knowing how people operate and being able to judge whether operating in that way will lead to good results is more important than knowing what they did
1. Knowing what people are like is the best indicator of how well they are likely to handle their responsibilities in the future. “Paying more attention to the swing than the shot”.
2. It is preferable to assess people based on their reasoning and their outcomes. Doing this teaches a lot about how to assess others’ logic and how to have better logic yourself
3. If someone is doing their job poorly, consider whether it is due to inadequate learning or inadequate ability
  1. Think of people’s performance as 2 parts: 1) learning and 2) ability
  2. A weakness that’s due to lack of experience or training can be fixed and ability cannot be. Failing to distinguish between these causes is a common mistake among managers
4. Training and testing a poor performer to see if he or she can acquire the required skills without simultaneously trying to assess their abilities is a common mistake
  1. Abilities, especially right brained abilities, are difficult to assess. When thinking about why someone is a poor performer, openly consider whether it’s a problem with their abilities.
Recognize that when you’re really in sync with someone about their weaknesses, the weaknesses are probably true
1. Once you reach an agreement, make a formal record of it
2. When judging people, remember that you don’t have to get to the point of beyond a shadow of a doubt
  1. Perfect understanding isn’t possible and trying to get to it wastes time and stalls progress. Instead, work toward developing a mutually agreed upon understanding of what someone is like
3. It should take you no more than a year to learn what a person is like and whether they are a click for their job
4. Continue assessing people throughout their tenure
5. Evaluate employees with the same rigor as you evaluate job candidates
Train, guardrail, or remove people; don’t rehabilitate them
1. Training is developing people’s skills. Rehabilitation is changes in people’s value and/or abilities. These are difficult to change and impractical
2. People that have repeatedly operated in a certain way will probably continue to operate that way because that behavior reflects what they’re like. Since people generally change slowly, you should expect slow improvement at best.
3. Instead, change the people. Don’t change the design to accommodate people
4. Don’t collect people
5. Be willing to “shoot the people you love”
  1. Cutting someone you have a meaningful relationship with who isn’t an A player is difficult but is necessary
6. When someone is “without a box” consider whether there is an open box that would be a better fit or whether you need to get them out of the company
  1. If they’ve failed, it’s because of some qualities they have and you need to understand what those qualities are.
  2. You’re trying to select people with whom you want to share your life. Everyone evolves over time.
7. Be cautious about allowing people to step back to another role after failing
Remember that the goal of a transfer is the best, highest use of the person in a way that benefits the community as a whole
1. Have people complete their swings before moving on to the new roles. A year in a job is sufficient before having conversations about a new role
Don’t lower the bar

To Build and Evolve Your Machine

Most people get caught up in the blizzard of things coming at them. In contrast, successful people get above the blizzard so they can see the causes and effects at play.

Manage as Someone Operating a Machine to Achieve a Goal

No matter what work you do, at a high level you are simply setting goals and building machines to help you achieve them. I built the machine that is Bridgewater by constantly comparing its actual outcomes to my mental map of the outcomes that it should be producing, and finding ways to improve it.
You and the people you work with must be clear on how your lower level goals grow out of your higher level goals and values. No matter how good you are at design, your machine will have problems. People are the most important part, since most everything including the designs themselves come from people.

Look down on your machine and yourself within it from the higher level
1. See things from top down. Looking at a photo of yourself and the world around you from outer space. From that vantage, you can see the relationships between the continents, countries, and seas. Then you can get more granular, by zooming into a closer up view of your country, city, neighborhood and finally your immediate environment.
2. Constantly compare your outcomes to your goals.
  1. Whenever you identify a problem with your machine you need to diagnose whether it’s the result of a flaw in its design or in the way your people are handling their responsibilities.
  2. Sample size is important. Any problem can be a one off or a symptom of root cause. If you look at enough, you can tell which one
3. Understand that a great manager is essentially an organizational engineer
  1. Great managers are not philosophers, entertainers, doers, or artists. They are engineers. They see their organizations as machines and work assiduously to maintain and improve them
  2. They create process flow diagrams to show how the machine works and to evaluate its design
  3. They build metrics to light up how well each of the individual parts of the machine (most importantly people) and the machine as a whole are working
  4. They tinker constantly with its designs and its people to make both better
  5. They don’t do it randomly but systematically, always keeping the cause and effect relationships in mind. They care deeply about the people involved
  6. The higher up in the organization, the more important vision and creativity become. Some start with management skills and develop vision, others go the other way around. But all great managers have both creativity and technical skills
4. Build great metrics.
  1. Metrics show how the machine is working by providing numbers and setting off alert lights in a dashboard. Aim for complete and accurate view of what your people are doing and how well they’re doing almost entirely through metrics
  2. In constructing your metrics, imagine the most important questions you need answered in order to know how things are going and imagine what numbers will give you the answers to them.
5. Beware of paying too much attention to what is coming at you and not enough attention to your machine
6. Don’t get distracted by shiny objects
Remember that for every case you deal with, your approach should have two purposes
1. Move you closer to your goal
2. Train and test your machine (your people and your design)
  1. The second purpose is more important because it is how you build a solid organization that works well in all cases. Most people focus on the first which is a big mistake
3. Everything is a case study
  1. Think about what type of case it is and what principles apply to that type of case
  2. You’ll get better at handling situations as they repeat over and over again through time
4. When a problem occurs, conduct the discussion at two levels:
  1. Machine level — why that outcome was produced
  2. Case at hand level — what to do about it
  3. Don’t mistake case at hand discussion just cause you’re micromanaging
5. When making rules, explain the principles behind them
  1. You don’t want people to just pay lipservice to the rules. They should have a high sense of ethics that makes them want to abide by them while also working to perfect them
6. Your policies should be natural extensions of your principles
  1. When a case arises, I lay out the principles behind how I am handling it and get in sync with others to see if we agree on those principles or must modify them to make them better
7. While good principles and policies almost always provide good guidance, remember that there are exceptions to every rule
  1. When someone wishes to make an exception to an important policy, they must write up a proposed alternative policy and escalate their request to the mgmt committee
Understand the differences between managing, micromanaging, and not managing
1. Great managers orchestrate rather than do
  1. Like the conductor of an orchestra, they don’t play an instrument but they direct their people so that they play beautifully together
  2. Micromanaging is telling people exactly what tasks to do or doing their tasks for them
  3. Not managing is having them do their jobs without your oversight and involvement
2. Managers must make sure that they are responsible for works well
  1. Manage others well
  2. Job slipping down to do work they’re not responsible for because others can’t do their jobs well
  3. Escalating what they can’t manage well
3. Managing the people who report to you should feel like skiing together
  1. You need to have close contact with your people on the slopes so that you can assess their strengths and weaknesses as they’re doing their jobs. There should be good back and forth as they learn by trial and error. With time, you can decide what they can and can’t handle on their own
4. An excellent skier is probably going to be a better ski coach than a novice skier
5. You should be able to delegate the details
  1. If you keep getting bogged down in details, you either have a problem with managing or training, or you have the wrong people doing the job
  2. The real sign of a master manager is that he doesn’t have to do practically anything
  3. Managers should view the need to get involved in the nitty gritty as a a bad sign
  4. There’s a real danger in delegating details when you’re actually being too distant from what’s important and essentially not managing. Great managers know the difference
Know what your people are like and what makes them tick, because your people are your most important resource
1. Develop a full profile of each person’s values, abilities, and skills, These qualities are the real drivers of behaviour so knowing them in detail will tell you which jobs a person can and cannot do well, which ones they should avoid, and how the person should be trained. These profiles should change as the people change. If you don’t know your people well, you don’t know what you can expect from them. You’re flying blind and you have no one to blame but yourself if you don’t get the outcomes you’re expecting
2. Regularly take the temperature of each person who is important to you and to the organization
  1. Probe your key people and urge them to bring up anything that might be bothering them
3. Learn how much confidence to have in your people — don’t assume it
  1. No manager should delegate responsibilities to people they don’t know well. It takes time to learn about people and how much confidence you can vest in them
4. Vary your involvement based on your confidence
  1. Management largely consists of scanning and probing everything you’re responsible for to identify suspicious signs
  2. Based on what you see, you should vary your degree of digging, doing more for people and areas that look suspicious, and less where what you see instills confidence. Use tools (Issue Logs, metrics, daily updates, checklists) to produce objective performance data which managers should review and spot check regularly
Clearly assign responsibilities

The most important person on a team is the one given overall responsibility for accomplishing the mission. This person must have both the vision to see what should be done and the discipline to make sure it’s accomplished.
Remember who has what responsibilities

People often fail to stick to their own responsibilities
Even senior people act like kids just learning t play soccer, running after the ball to help but forgetting what position they’re suppose to play. This can undermine performance. Make sure that people remember how the team is suppose to work and play their positions well
Watch out for “job slip”. This is when a job changes without being explicitly though through and agreed to generally because of changing circumstances or a temporary necessity. This often leads to the wrong people handling the wrong responsibilities and confusion over who is suppose to do what

Probe deep and hard to learn what you can expect from your machine
1. Constantly probe the people who report to you while making sure they understand that it’s good for them and everyone else to surface their problems and mistakes
2. This isn’t just top down. The people who work for you should constantly challenge you so you can become as good as you can be. They will understand that they are just as responsible for finding solutions as you are. It’s easier for people to remain spectators than players. Forcing them onto the field strengthens the whole team
3. Get a threshold level of understanding
  1. Rich understanding of people, processes, and problems to make well informed decisions. Otherwise you will believe the stories and excuses you are told
4. Avoid staying too distant
  1. You need to know your people extremely well, provide and receive regular feedback, and have quality discussions
5. Use daily updates as a tool for staying on top of what your people are doing and thinking
  1. Ask each person that reports to me to take 10-15 minutes to write a brief description of what they did that day, the issues that pertain to them, and their reflections. By doing this you can gauge how they are working together, what mood they are in, and what threads to pull on
6. Probe so you know whether problems are likely to occur before they actually do
  1. If problems take you by surprise, you’re either far too removed from your people and processes or you haven’t adequately visualized how the people and process might lead to various outcomes. When a crisis is brewing, contact should be close enough that there will be no surprises
7. Probe to the level below the people who report to you
8. Have the people who report to the people who report to you feel free to escalate their problems to you
9. Don’t assume that people’s answers are correct
10. Train your ear
  1. Listen for the anonymous “we” as a cue that someone is likely depersonalizing a mistake
11. Make your probing transparent rather than private
12. Welcome probing
  1. When you’re being probed, it’s essential to stay calm
  2. Your emotional “lower level you” will react with something like “you’re a jerk because you’re against me and making me feel bad” whereas higher level you should be thinking “it’s wonderful that we can be completely honest like this and have such a thoughtful exchange to help assure that I’m doing things well”
  3. Listen to your higher level you and don’t lose sight of how difficult it can be for the person doing the probing. This will also build your character and your equanimity
13. Remember that people who see things and think one way often have difficulty communicating with and relating to people who see things and think another way
14. Pull all suspicious threads
  1. It’s worth pulling all suspicious threads because
    1. Small negative situations can be symptomatic of serious underlying problems
    2. Resolving small differences of perception may prevent more serious divergence of views
    3. In trying to create a culture that values excellence, constantly reinforcing the need to point out and stare at problems no matter how small is essential. Otherwise you set an example for tolerating mediocrity
    4. Prioritization can be a trap if it causes you to ignore problems around you. Allowing small problems to go unnoticed and unaddressed creates the perception that it’s acceptable to tolerate such things. Imagine that all your little problems are small pieces of trash you’re stepping over to get to the other side of a room. Yes you can get to the other side but it won’t hurt you to pick up the trash as you come to it, reinforcing the culture of excellence will have positive second and third order consequences that will reverberate across org
  2. Recognize that there are many ways to skin a cat
Think like an owner and expect the people who you work with to do the same
1. It’s a basic reality that if you don’t experience the consequences of your actions, you’ll take less ownership of them. If you’re an employee, you get your paycheck for turning up and pleasing your boss, your mindset will inevitably be trained to this cause-effect relationship. If you’re a manager, make sure to structure incentives and penalties to encourage people to take full ownership of what they do and not just coast by
2. Going on vacation doesn’t mean one can neglect one’s responsibilities
  1. Thinking like an owner means ensuring responsibilities are handled well regardless of what comes up
  2. While you’re away, it’s your responsibility to ensure nothing drops
  3. Force yourself and the people who work for you to do difficult things
Recognize and deal with key man risk
1. Every key person should have at least 1 person that can replace him
Don’t treat everyone the same — treat them appropriately
1. Don’t let yourself get squeezed
  1. Worry about doing the right thing and not about what people think about you
2. Care about the people who work for you
  1. Work with people you care about and respect
Know that great leadership is generally not what it’s made out to be
1. It is more practical to be honest about one’s uncertainties, mistakes, and weaknesses than to pretend they don’t exist
2. It is also more important to have good challengers than good followers
3. Thoughtful discussion and disagreement is practical because it stress tests leaders and brings what they’re missing to their attention
4. Be weak and strong at the same time
  1. Always seek the advice of wise others and let those who are better than you take the lead. Be open minded and assertive at the same time
5. Don’t worry about whether or not your people like you and don’t look to them to tell you what you should do
  1. Just worry about making the best decisions possible, recognizing that no matter what you do, most everyone will think you’re doing something wrong
  2. How to deal with your people? Encourage them to bring their disagreements to the surface and work through them so openly and reasonably that everyone will recognize the relative merits of your thinking. Have open disagreement and be happy to either win or lose the thought battles, as long as the best ideas win out
6. Don’t give orders and try to be followed; try to be understood and to understand others by getting in sync
Hold yourself and your people accountable and appreciate them for holding you accountable
1. If you’ve agreed with someone that something is supposed to go a certain way, make sure it goes that way — unless you get in sync about doing it differently
  1. People often unconsciously gravitate towards activities they like rather than what’s required. If they lose sight of priorities, you need to redirect them. This is why it’s important to get frequent updates from people about their progress.
2. Distinguish between a failure in which someone broke their contract and a failure in which there was no contract to begin with
  1. If you didn’t make an expectation clear, you can’t hold people accountable for it not being fulfilled
  2. Don’t assume that something was implicitly understood. Common sense isn’t actually all that common — be explicit
3. Avoid getting sucked down
  1. This happens when a manager is pulled down to doing subordinate’s tasks without acknowledging the problem
  2. This bears resemblance to job slip since it involves manager’s responsibilities slipping into areas that should be left to others
  3. This can make sense temporarily to push through to a goal
  4. Happens when a manager chronically fails to properly redesign an area of responsibility to keep him from having to do the job. You can tell this problem exists when the manager focuses more on getting tasks done than on operating the machine
4. Watch out for people who confuse goals and tasks because if they can’t make that distinction then you can’t trust them with responsibilities
  1. People who can see goals are able to synthesize too
  2. Test: How is goal XYZ going?
    1. Good answer: a synthesis up-front of how XYZ is going overall and will support it by accounting for tasks that were done to achieve it
    2. Bad answer: only describe tasks that were done
5. Watch out for unfocused and unproductive “theoretical should”
  1. Occurs when people assume others or themselves should be able to do something when they don’t actually know whether they can (“Sally should be able to do xyz”)
  2. Similar problem is something vague and depersonalized “we should do x y z”. It’s important to identify who these people are by name
Communicate the plan clearly and have clear metrics conveying whether you are progressing according to it
1. People should know the plans and designs within their departments
2. Put things in perspective by going back before going forward
  1. Take the time to reflect on how the machine has been working up until now
  2. Tell the story of how we got here, highlight important items that were done well or poorly in relation to their consequences, draw attention to the bigger picture and overarching goals, specify the people who are responsible for specific goals and tasks, and help achieve agreement
  3. Being able to connect all these items at multiple levels is essential for people to understand the plan, give feedback and believe in it
Escalate when you can’t adequately handle your responsibilities
1. Make sure that employees are proactively doing the same
2. Escalation must not be seen as a failure
3. What’s important is raising concerns so bosses knows about the risks and can get in sync on what to do about it
4. There is no greater failure than to fail to escalate a responsibility you cannot handle
5. Make sure people are proactive, demand that they speak up when they can’t meet deliverables or deadlines

Perceive and Don’t Tolerate Problems

Identifying and not tolerating problems is one of the most important and disliked things people can do. Celebrate finding out what is not going well so you can make it go better.
Thinking about problems that are difficult to solve may make you anxious but not thinking about them and not dealing with them should make you even more anxious
Having this kind of anxiety about what can go wrong is extremely useful. It is what drives one to develop systems and metrics for monitoring the outcomes your machine’s producing

If you’re not worried, you need to worry — and if you’re worried, you don’t need to worry
Design and oversee a machine to perceive whether things are good enough or not good enough, or do it yourself
1. Assign people the job of perceiving problems, give them time to investigate, make sure they have independent reporting lines so that they can convey problems without fear of recrimination
2. Watch out for the “Front in the Boiling Water Syndrome”
  1. People slowly get used to unacceptable things that would shock them if they saw them with fresh eyes
3. Beware of group think. The fact that no one seems concerned doesn’t mean nothing is wrong
4. To perceive problems, compare how the outcomes are lining up with your goals
  1. This means comparing the outcomes that your machine is producing to your visualization of the outcomes you expected and note deviations
5. “Taste the soup”
  1. Think of yourself as a chef and taste the soup before it goes out to the customers. Managers need to do that too
6. Have as many eyes looking for problems as possible
  1. Encourage people to bring problems to you
7. “Pop the cork”
  1. It’s your responsibility to make sure communications from your people flow freely so encourage it by giving plenty of opportunities
8. Realize that the people closest to certain jobs probably know them best
Be very specific about problems; don’t start with generalizations
1. Avoid the anonymous “we” and “they” because they mask personal responsibility
Don’t be afraid to fix the difficult things
1. You need to look at the feedback you’re getting on your machine and either fix your problems or escalate them, if need be, over and over again
2. Understand that problems with good, planned solutions in place are completely different from those without such solutions
3. Think of the problems you perceive in a machinelike way
  1. Note the problem
  2. Determine who the RPs to raise it to are
  3. Decide when the right time to discuss it is
  4. So, What, Who, When

Diagnose Problems to Get at Their Root Causes

No. 1 Mistake — dealing with problems as one offs rather than using them to diagnose how their machine is working so they can improve itNo. 2 Mistake — depersonalizing the diagnosis. Not connecting problems to the people who failed and not examining what it is about them that cause the failureNo. 3 Mistake — not connecting what one is learning in one diagnosis to what was learned in prior ones
In diagnostic meetings, start with a mental map of how things should’ve gone based on the machine you’ve built then ask the managers to describe what had actually happened
Bad outcomes don’t just happen; they occur because specific people make or fail to make specific decisions.

To diagnose well, ask the following questions:
1. Is the outcome good or bad?
  1. Who is responsible for the outcome?
2. If the outcome is bad, is the Responsible Party incapable and/or is the design bad?
3. How should the machine have worked?
  1. Keep it simple! A common pitfall is delving into granular exam of procedural details rather than stay at the level of the machine (the level of who was doing what)
  2. You should be able to crystallize your mental map in just a few statements, each connected to a specific person
  3. If you’re delving into details, you’re probably off track
    1. Did the machine work as it should have? YES or NO
    2. No? What didn’t go as it should have? What broke?
      1. This is the proximate cause and should be easy to get to if the mental map is laid clearly
      2. Get here through a series of Yes/No questions
        Did he to it on time? Yes/No?
        If not, did he escalate? Yes/No
        It gets into the shit when people go into detailed explanation of “what they did”. It’s your job to guide the conversation toward an accurate and clear synthesis
        You also have to synthesize whether the problem was meaningful. Don’t focus too much on rare events or trivial problems
    3. Why didn’t things go as they should have?
      1. Synthesize root cause to determine whether RP is capable or if it’s a design issue
        Try to tie failure to the 5 Step Process
        Which step was not done well?
        Try to crystallize the failure as a specific key attribute or set of attributes. As yes/no questions: did the RP not manage well? Not perceive problems well? Not execute well?
        If X attribute is done well next time, will the bad outcome still occur? This is a good way of making sure you’re logically connecting the outcome back to the case. If your mechanic replaced that part in your car, would that have fixed it?
        If the root cause is faulty design, don’t stop. Ask who’s responsible for the design and whether they’re capable of designing well
    4. Is the root cause a pattern? Yes/No
      1. E.g. If Harry has failed to do the assignment due to reliability:
        Does Harry have a reliability problem in general?
        If so, is reliability required for the role?
        Is Harry’s failure due to training or abilities?
    5. How should the people/machines evolve as a result?
      1. Are there responsibilities that need to be assigned or clarified?
      2. Are there machine designs that need to be reworked?
      3. Are there people whose fit for their roles needs to be reevaluated?
      4. Ask yourself “Who should do what differently?”
      5. Identify at which step in the 5 Step Process the failure occurred
        If a person is chronically failing, is it Due to lack of training or ability?
        At which of the 5 steps did the person fail? Different steps require different abilities, you can identify which abilities are lacking
      6. Identify principles that were violated
      7. Avoid Monday morning quarterbacking
        Evaluate merits of a past decision based not on what you know now but only on what you could have reasonably known at the time the decision was made
      8. Don’t confuse the quality of someone’s circumstances with the quality of their approach to dealing with the circumstances
      9. Identifying the fact that someone else doesn’t know what to do doesn’t mean that you know what to do
        They are able to logically describe how to handle the problem
        They have successfully solved similar problems in the past
      10. Remember that a root cause is not an action but a reason
        Root causes described in adjectives, not verbs so keep asking why to get at them
        Example: The problem was due to bad programming
        Why was there bad programming?
        Because Harry programmed it badly
        Why did Harry program it badly?
        Because he wasn’t well trained and because he was in a rush
        Why wasn’t he well trained? Did his manager know that he wasn’t well trained and let him do the job anyway, or did he not know?
      11. To distinguish between a capacity issue and a capability issue, imagine how the person would perform at that particular function if they had ample capacity
        If the same kinds of problems came up, it’s very likely a capability issue
      12. Keep in mind that managers usually fail or fall short of their goals for one or more of 5 reasons
        They are too distant
        They have problems perceiving bad quality
        They have lost sight of how bad things have become because they have gotten used to it
        They have such high pride in their work (or such large egos) that they can’t bear to admit they are unable to solve their own problems
        They fear adverse consequences from admitting failure
Maintaining an emerging synthesis by diagnosing continuously
Keep in mind that diagnoses should produce outcomes
Use the following “Drill Down” technique to gain an 80/20 understanding of a department or sub-department that is having problems
1. If done well, it can be done in 4 hours
  1. Step 1: List the Problems
    1. Quickly inventory all the core problems. Be very specific. Don’t generalize or use “we”. Name the names.
    2. Have all the relevant people from the area under scrutiny participate in the drill down
    3. Don’t focus on rare events or trivial problems
    4. Don’t try to find solutions yet. Focus on listing the problems
  2. Step 2: Identify the Root Causes
    1. Most problems happen for 1 of 2 reasons: One — It isn’t clear who the RP is or Two — THE TP isn’t handling his/her responsibilities well
    2. Keep Asking WHY
    3. Problem: Team is continually working late and on the verge of burning out
    4. Why? Because we don’t have enough capacity to meet the demand put on the team
    5. Why? Because we inherited this new responsibility without additional staff
    6. Why? Because the manager did not understand the volume of work before accepting the responsibility
    7. Why? Because the manager is bad at anticipating problems and creating plans [Root Cause]
    8. People tend to be more defensive than self critical. It’s your job as manager to get at truth and excellence, not to make people happy.
  3. Step 3: Create a Plan
    1. Step away and create a plan that addresses the root causes. Plans are like movie scripts, where you visualize who will do what through time to achieve goals. They are developed by iterating through multiple possibilities, weighing likelihood of goal achievement vs costs and risks. They should have specific tasks, outcomes, RPs, tracking metrics, and timelines. Allow the key people involved to discuss the plan thoroughly. Not everyone needs to agree on the plan but the RPs and other key people must be in sync
  4. Step 4: Execute the Plan
    1. Execute the plan and transparently track its progress. At least monthly, report on the planned and actual progress to date and the expectations for the coming period, and hold people publicly accountable for delivering their outcomes successfully and on time.
Understand that diagnosis is foundational to both progress and quality relationships

Design Improvements to your Machine to Get Around Your Problems

Designs need to be based on deep and accurate understandings which is why diagnosis is so important. It’s a visceral process of staring at problems and using the pain they cause to stimulate creative thinking.
While the best designs are drawn from a rich understanding of actual problems, you often have to design based on anticipated problems as opposed to actual ones. That’s why having systematic ways to track issues and what people are like is so useful.
Creativity is essential for this process as is character.

Build your machine
Systemize your principles and how they will be implemented
1. Create great decision making machines by through through the criteria you’re using to make decisions while you’re making them
Remember that a good plan should resemble a movie script
1. The more vividly you can visualize how the scenario you create will play out, the more likely it is to happen as you plan. Visualize who will do what when and the result they’ll produce.
2. Put yourself in the position of pain for a while so that you gain a richer understanding of you’re designing for
3. Visualize alternative machines and their outcomes, and then choose
  1. A good designer is able to visualize the machine and its outcomes in various iterations
4. Consider second- and third-order consequences, not just first order ones
5. Use standing meetings to help your organization run like a Swiss clock
  1. Regularly scheduled meetings add to overall efficiency by ensuring that important interactions and to-do’s aren’t overlooked, eliminating the need for inefficient coordination, and improving operations (repetition leads to refinement). It pays to have standardized meeting agendas that ask the same feedback questions in each meeting (such as how effective the meeting was) and nonstandard meeting agendas that include things done infrequently (such as quarterly budget reviews)
6. Remember that a good machine takes into account the fact that people are imperfect.
  1. Design in such a way that you produce good results even when people make mistakes!
Recognize that design is an iterative process. Between a bad “now” and a good “then” is a “working through it” period
1. This period is when you try out different processes and people, seeing what goes well or poorly, learning from iterations, and moving towards the ideal systematic design.
2. Understand the power of the “cleansing storm”. Bad times that force cut backs so only the strongest and most essential employees (or companies) survive are inevitable and can be great, even though they seem terrible at the time.
Build the organization around goals rather than tasks
1. Giving each department a clear focus and the appropriate resources to achieve its goals makes the diagnosis resource allocations more straightforward and reduces job slip
  1. E.g. Marketing Department (goal: to market) is separate from Client Service Department (goal: to service clients), even though they do similar things, these are 2 distinct goals.
2. Build your organization from the top down
  1. It’s opposite of a building: its foundation is at the top, so make sure you hire managers before you hire their reports.
3. Remember that everyone must be overseen by a believable person who has high standards
4. Make sure the people at the top of each pyramid have the skills and focus to manage their direct reports and a deep understanding of their jobs
5. In designing your organization, remember that the 5-Step Process is the path to success and that different people are good at different steps
  1. Assign specific people to do each of these steps based on their natural inclinations
  2. Big picture visionary should be responsible for goal setting
  3. Taste tester should be assigned job of identifying and not tolerating problems
  4. Logical detective who doesn’t mind probing people should craft plan to make the improvements
  5. The reliable taskmaster should make sure the plan gets executed
6. Don’t build the organization to fit the people
  1. Jobs should be created based on the work that needs to be done, not what people want to do or which people are available
  2. First come up with the best workflow design, then sketch it out on an organizational chart, visualize how the parts interact, and specify what qualities are required for each job. Only after all that is done should you fill the slots with people
7. Keep scale in mind
  1. Your goals must be the right size to warrant the resources you allocate. An org might not be big enough to justify having both sales and an analytics group. Temporarily sharing or rotating resources is fine and is not the same as a merging of responsibilities
8. Organize departments and sub-departments around the most logical groupings based on “gravitational pull”
  1. Some groups naturally gravitate toward one another. It might be based on common goals, shared abilities and skills, physical location etc. Imposing your own structure without acknowledging these pulls will result in inefficiency
9. Make departments as self sufficient as possible so that they have control over the resources they need to achieve their goals
10. Ensure that the ratio of senior managers to junior managers and of junior managers to their reports are limited to preserve quality communication and mutual understanding
  1. Not more than 1:10 and closer to 1:5
11. Consider succession and training in your design
  1. The best approach I’ve seen for doing this is GE, 3D where they build a pyramid-like succession pipeline in which the next generation is exposed to the thinking and decision making of the current leaders so they can both learn and be tested
12. Don’t just pay attention to your job; pay attention to how your job will be done if you are no longer around
  1. Visualizing your replacement is an enlightening and productive experience. You will start to think about how to get your best people into slots that don’t yet exist.
13. Use “double-do” rather than “double-check” to make sure mission critical tasks are done correctly.
  1. Use double do’s in critical areas such as finance, where large amounts of money are at risk
14. Use consultants wisely and watch out for consultant addiction
  1. If a position is part time and requires highly specialized knowledge, I would prefer consultant or outsiders
Create an Organizational Chart to Look Like a Pyramid, with Straight Lines Down that Don’t Cross
1. Involve the person who is the point of the pyramid when encountering cross-departmental or cross-sub-departmental issues
2. Don’t do work for people in another department or grab people from another department to do work for you unless you speak to the person responsible for overseeing the other department
3. Watch out for “department slip”
Create guardrails when needed and remember it’s better not to guardrail at all
1. A good guardrail typically takes the form of a team member whose strengths compensate for the weaknesses of the team member who needs to be guard railed
2. The relationship should be firm without being overly rigid. Ideally it should work like two people dancing — they’re pushing against each other
3. Don’t expect people to recognize and compensate for their own blind spots
4. Consider the clover-leaf design
Keep your Strategic Vision the Same while making appropriate tactical changes as circumstances dictate
1. Don’t put the expedient ahead of the strategic
  1. Rushing into ad hoc solutions while kicking the can down the road is a “path to slaughter”
2. Think about both the big picture and the granular details, and understand the connections between them
Have good controls so that you are not exposed to the dishonesty of others
1. Don’t assume people are operating in your interest rather than their own. Most people will cheat if given the opportunity
2. Investigate and let people know you are going to investigate
3. Remember that there is no sense in having laws unless you have policemen/auditors
4. Beware of rubber-stamping → have ways to audit the auditors
5. Recognize that people who make purchases on your behalf probably will not spend money wisely
  1. Pay wholesale whenever possible
Have the clearest possible reporting lines and delineations of responsibilities
1. Assign responsibilities based on workflow design and people’s abilities, not job titles
2. Constantly think about hot to produce leverage
  1. You’re looking for ways to achieve more with less
  2. At 50:1 leverage, for every hour I spend with each person who works for me, they spend about 50 hours working to move the project along. At our sessions, we go over the vision and the deliverables, then they work on them, and then we review the work, and they move forward based on my feedback — and we do that over and over again.
  3. To make training easy to leverage, document the most common questions and answers through audio, video, or written guidelines and then assign someone to organize them and incorporate them into a manual
  4. Recognize that it’s far better to find a few smart people and give them the best technology than to have a greater number of ordinary people who are less well equipped
  5. Use leveragers
    1. Leveragers are people who can go from conceptual to practical effectively and do the most to get your concepts implemented
Remember that almost everything will take more time and cost more money than you expect
1. Assume that things take 1.5x what’s expected

Do What You Set Out To Do

Most of success comes from doing the mundane and often distasteful stuff, like identifying and dealing with problems and pushing hard over a long time.

Work for goals that you and your organization are excited about and think about how your tasks connect to those goals
1. Be coordinated and consistent in motivating others
2. Don’t act before thinking. Take the time to come up with a game plan
  1. The time spent on thinking through the plan will be virtually nothing in relation to the actual doing. This process will make the doing radically more effective
3. Look for creative, cut through solutions
Recognize that everyone has too much to do
1. The 3 ways to fix this problem:
  1. Having fewer things to do by prioritizing and saying no
  2. Finding the right people to delegate to
  3. Improving your productivity
2. Don’t get frustrated
  1. If nothing bad is happening to you now, wait a bit and it will. This is just reality. My approach to life is that it is what it is and the important thing for me to figure out is what to do about it and not spend time moaning about how I wish it were different
  2. “Success consists of going from failure to failure without loss of enthusiasm” — Churchill
  3. It makes no sense to get frustrated when there’s so much you can do, and when life offers so many things to savor. There’s nothing you can’t accomplish if you think creatively and have the character to do the difficult things
Use Checklists
Allow time for rest and renovation
Ring the bell

Use Tools and Protocols to Shape How Work Is Done

Having systemized principles embedded in tools is especially valuable for an idea meritocracy
1. To produce real behavioral change, understand that there must be internalized or habituated learning
2. Use tools to collect data and process it into conclusions and actions
3. Foster an environment of confidence and fairness by having clearly stated principles that are implemented in tools and protocols so that the conclusions reached can be assessed by tracking the logic and data behind them
  1. Learning what people are like
  2. Sharing what people are ike
  3. Providing personalized training and development
  4. Offering guidance and oversight in specific situations
  5. Helping managers sort people into the right roles

Principles Life and Work Notes

Ray Dalio’s Life Principles

The 5 Step Process to Get What You Want

1. Have Clear Goals

2. Identify and don’t tolerate problems

3. Diagnose Problem to Get At Their Root Causes

4. Design A Plan

5. Push through to completion

Execution

Self Diagnosis

Be Radically Open Minded

The Art of Thoughtful Disagreement

People Are Wired Differently

The Brains Are Always Battling and How To Control Them

Learn How to Make Decisions Effectively

LEARNING

(Synthesize the situation through time)

DECIDING

Work Principles

To Get The Right Culture

Cultivate Meaningful Work and Meaningful Relationships

Create a Culture in Which It Is Okay to Make Mistakes and Unacceptable Not To Learn From Them

Get and Stay in Sync

Believability Weight Your Decision Making

Recognize How To Get Beyond Disagreements

To Get The People Right

Remember that the WHO is more important than the What

Hire Right, Because the Penalties for Hiring Wrong Are Huge

Constantly Train, Test, Evaluate, and Sort People

To Build and Evolve Your Machine

Manage as Someone Operating a Machine to Achieve a Goal

Perceive and Don’t Tolerate Problems

Diagnose Problems to Get at Their Root Causes

Design Improvements to your Machine to Get Around Your Problems

Do What You Set Out To Do

Use Tools and Protocols to Shape How Work Is Done

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Ray Dalio’s Life Principles

The 5 Step Process to Get What You Want

1. Have Clear Goals

2. Identify and don’t tolerate problems

3. Diagnose Problem to Get At Their Root Causes

4. Design A Plan

5. Push through to completion

Execution

Self Diagnosis

Be Radically Open Minded

The Art of Thoughtful Disagreement

People Are Wired Differently

The Brains Are Always Battling and How To Control Them

Learn How to Make Decisions Effectively

LEARNING

(Synthesize the situation through time)

DECIDING

Work Principles

To Get The Right Culture

Cultivate Meaningful Work and Meaningful Relationships

Create a Culture in Which It Is Okay to Make Mistakes and Unacceptable Not To Learn From Them

Get and Stay in Sync

Believability Weight Your Decision Making

Recognize How To Get Beyond Disagreements

To Get The People Right

Remember that the WHO is more important than the What

Hire Right, Because the Penalties for Hiring Wrong Are Huge

Constantly Train, Test, Evaluate, and Sort People

To Build and Evolve Your Machine

Manage as Someone Operating a Machine to Achieve a Goal

Perceive and Don’t Tolerate Problems

Diagnose Problems to Get at Their Root Causes

Design Improvements to your Machine to Get Around Your Problems

Do What You Set Out To Do

Use Tools and Protocols to Shape How Work Is Done

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