Are you a bottom-up or a top-down thinker?

It’s such a cliché that entrepreneurship and innovation is dependent on creativity. Personally I think creativity is a good thing, but generally I think people attribute the success wrongly to creativity. What’s really the reason that creative thinkers succeed, it seems to me at least, is not so much their creativity but what causes it. Creative thinkers are relentless bottom-up thinkers and it’s this bottom-up thinking that causes them to be both successful and creative.

So what is this notion of bottom-up and top-down thinking? Well, imagine that you are writing your business plan and you come to the part where you need to estimate sales, this should be a well known situation for most entrepreneurs. A top-down thinker will start at the top, he will say something like, well, the market for my product is a $4 billion market, and if I get 1 % of that I’ll make $40 millions. A bottom-up thinker will start at the bottom, he will say something like, I know I can sell my product to these 15 companies, which means I’ll make $2 million. Then when I have those as references I believe I can get those other 100 companies, and then I’ll get those 1000 over there.

This is a mindset that works in many situations. In product development the top-down thinker will start by looking at what the product will look like when it’s done. The bottom-up thinker will start by looking at what is at his disposal, and then try to see what can be achieved. A similar notion has been termed effectual reasoning versus causal reasoning. Causal reasoning is the kind of reasoning thought in business schools. Student’s get to start with pre-determined goals, often set in the text of an assignment and some knowledge or assumptions that they are given, from this point they need to navigate their way, using theory, to the correct answer. The sad part is that causal reasoning is also thought in elementary schools and up, so by the time we get to university level most remnants of effectual thinking has disappeared. Is this why entrepreneurs such as Richard Branson, Steve jobs, Michael Dell, Coco Channel, Walt Disney, Henry Ford, Bill Gates and Ty Warner all dropped out of school?

Effectual thinkers don’t necessarily start with a predetermined goal, they start with what’s available to them and look at what they can achieve using those resources. When you think like that you also become more creative. A good example is an assignment some students got at Stanford. They were divided in to 14 groups and each group received an envelope with $5 in seed capital in it, they were told that the assignment was to make as much money as possible until next week’s class. They could plan as much as they wanted, but when they opened the envelope they would only have two hours to complete the task. Interestingly, none of the three top groups used the seed funding. But that’s another story. The winning group made $600 in 2 hours. Such an assignment, though it had a predefined goal of making money, is a practice in effectual thinking because they had no limitations on what to do. The students were only given the resources ($5 and an Ivy League education) and had to come up with ideas as to how to act themselves.

I see way too little of this kind of thinking going around. Business managers do stay away from this kind of reasoning, and in many situations rightly so. I wonder however if there is a way to switch between the two sets and use whatever is appropriate for the situation? The really sad part is that we don’t teach our children and our future leaders to think bottom-up or effectually. In fact we teach them not to. The ideal thinking in the civilized world is causal and top-down, firmly founded in the scientific method. Maybe it’s time to see what would happen if we let children talk back and challenge our ideas? Maybe we would be surprised, and maybe they would turn in to decent human beings anyway? Well, I’m digressing, but in any case I think that we need to rethink. The lesson from this was meant to have you think about what kind of thinker you are. In many cases it seems to me that each way of thinking has its pros and cons, but if we can learn to use both sets of thinking we can surely be much better thinkers.

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How to start a movement!

Many startups rely on word of mouth and so on. Maybe it’s even too many; at least VC’s would have us believe that you should do something else too. Because, more often than not, others might not be as excited about your product or company as you are. This being said, if you are going to start a movement around your product or service, or around an issue that you care about, it’s not as easy as you think. Look at this goodie from the internets (sic), and watch a real life case study of a movement starting up and catching on. I wonder if entrepreneurs that rely on word of mouth, viral marketing and communities have something to learn from this!


Talk: Derek Sivers: How to start a movement at TED 2010

How to deal with uncertainty - the maximize options approach

In a recent blog post I wrote that it is becoming increasingly difficult to forecast the future. As I imply, the problem is choice: Lower distances between people increases the ripple effect of individual choices, and technology together with consumerism increase the sets of choices, and options available to each choice to create an exponentially growing possible futures.

"Difficult to see. Always in motion is the future.” (Yoda)

Simply put I would claim that the uncertainty of the future is a function of the number of people that make choices, times the number of choices available, times the number of options available in each choice, times a coefficient for the impact of each choice. As all the factors that go in to the function have higher values now than they did earlier the uncertainty increases. What I don’t mention is how to cope with the increasing uncertainty; this is what I will address here.

Economists love choices, because they apply math to find the “right” choice. Consider that you’re in a TV game show, you get presented with two choices, a) 100% chance of $ 10 000 or b) 50 % chance of either $0 or $50 000. Any economist will tell you that the options are worth respectively $10 000 and $25 000, so you should choose b) (this is because given enough similar choices the average outcome would be those numbers). Now, if however, you chose b) and you lost and had to go home with $ 0, did you make the wrong choice? Many will say yes, because you lost all the money. These people think that a good choice is a choice that you would not change after you see the outcome; this seems to me like it is a bad definition. I think that you always have to judge a choice based on the information that was available at the time, thus it was still the right choice! If you are presented with a choice of this type, you should follow this procedure.

The problem, as the clever reader has already deduced, is that you rarely know the numbers. And this is exactly what forecasting has been occupied with since the beginning of the industrial era; how can we put numbers on stuff that we know very little about? There are tons of books on this subject, so I won’t go in to it, but rather utter my proposition on how to deal with uncertainty in choices in these days, and especially in the years to come. First, let me repeat myself, in instances where numbers are available or could be attained, follow the above procedure. This is for all those other instances.

I already professed my love for platform technologies, but I haven't explained why, so here goes. The more malleable a technology is, the more uses it can have, thus the more ways it can be successful should it fail in its intentional use. The more adaptable a technology is (Cēterīs paribus), the higher is the probability that its owners will find an application that is profitable. Consider a hypothetical example, two companies are specializing in medical technology, both companies have a development cycle of 15 years, and neither has any information about what its competitors are doing. One company is certain that it can make a cure for let’s say AIDS, and the other is certain that it can make a platform that will cure every bacterial infection known to man, but would only be able to market it for one use at a time. Assume that the technical challenge is equal, and that the main risk is that competitors beat them to market. Which company would you invest in? Since neither has any information about what their competitors are doing (the premise of uncertainty), I would invest in the bacterial platform company. The AIDS company has one chance to succeed, if someone else beats them to market they are dead, finito. If someone else makes the bacterial technology, the company can just change its marketing to target another disease, because the drug can target all diseases, but just market towards one at a time.

By the same principle, even if I don’t believe in global warming I believe in environmentalism, because an earth with rainforests have more options that an earth without them. A country with a highly educated workforce has more options than one without it. A company with several paths to market has more options than one with only one path to market. A technology with many uses has more options than one with limited use. A user friendly computer has more options than one that’s not. A diverse education gives more opportunities than one that’s specific. This principle is universal.

But, you may ask, how does this relate to forecasting the future? Well, the concept I’m trying to explain has two implications for you. Firstly, it means that if there are high uncertainty go with the option that leaves more options open. Secondly, when creating something, try to leave as many options open for as long as possible. If you don’t know how things are going to turn out right now, maybe you will have a better understanding in the future, thus closing doors prematurely is extremely dangerous and will become even more so in the future.

To wrap it up, here are some simple predictions made following this principle:

• Mobile phones that allows anyone to create uses will have more uses than a mobile phone that don’t, thus cell phone producers that have open platforms will outlive those that don’t.
• Countries that have an adaptable workforce will be less affected by upheaval, because they can shift the workforce over in other industries temporarily or permanently should disaster strike in a specific industry.
• Renewable energy producers that use existing infrastructure, such as oil from algae, will be more successful than those that gamble on technologies like hydrogen that requires major rebuilds of gas stations etc, because they have more potential customers, quicker.
• On demand television will outcompete fixed programming, because people will have more options on when and where to watch. On demand television also have more options on how to make money - the business model.
• The deck of cards will survive Monopoly, because you can play many more games with a deck of cards. Also you can do magic, tell someone’s fortune or even use them for a raffle.

The point is that the more adaptable you are, the more likely are you to survive turbulence or achieve your goals in an uncertain world. Forecasting is great, but when that fails, you should try to keep your options open. Even when traditional forecasting is a possibility you should consider looking at what has more options that are favorable to your goal. It’s always better to have two ways to success than just one, especially when the probabilities of each way actually leading to success is unkown.

If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.