Are you a normal thinker in a power-law world?

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Along with celebrating the holidays, eating cookies, catching up on sleep, eating cookies, and doing fun projects with the kids (did I mention the cookies?), one reason I enjoy the year-end is the chance to chip away at the stack of unread books piling up in my house. A particularly thought-provoking book in this year’s batch is Peter Thiel’s Zero to One, which has earned a spot on my recently revised Essential Reading List.

This post is not a book review, but rather a highlight of an idea Thiel introduces early in the book and has appeared in my daily thoughts since reading it. He reminds us that conventional Western thought trains us to think of outcomes as following a normal (random) distribution, but in fact both the natural and business world follow a power law distribution. Accepting this re-framing of the world around us is easy in theory, and changing our choices in life as a result can be very difficult.

Some are mean, some have no mean

Some are mean, some have no mean

The idea itself is not original – from the application of mathematical theories to the emerging computer science field in the 1950s, to Malcolm Gladwell’s 2006 New Yorker article, to Taleb’s Black Swan – but Thiel’s framing of the concept, and its implications, is novel.

Many of us are taught to value breadth over depth, and to avoid “placing all of our eggs in the same basket.” We are coached to believe that well-roundedness is a virtue but hyper-specialization is “weird.” The entire premise of the liberal arts education system, from classical to modern times, is to provide foundational knowledge in a broad range of topics. [Personal note: not all institutions follow this mantra. The feedback I heard after being rejected from MIT’s undergraduate engineering program was that I was “too well rounded.”] As students and professionals, we are graded on a curve (the normal distribution). We are advised that portfolio diversification is the safest and most profitable theory of investment.

But strategy is about trade-offs. A business must choose to specialize in a certain market, geography, or product domain in order to reduce competition and increase profit. We cannot diversify our professional lives by being partially invested in many careers. At some point, we must choose to specialize in a function, industry, or growth stage in order to excel.

Sure, it’s interesting to think about whether phenomena like marathon finishing times, portfolio company performance, emissions, or health care spending follow a normal or power law distribution (at least for a few moments). But how can we apply this new way of framing the world? Here are a few ways to put this theory to action in life:

  • Think, plan, and go deep – from an early age. Find out what you (and your kids) are passionate and talented in, and build expertise. The most knowledgeable and talented people in any discipline are always in demand, regardless of market cycles.
  • Take risks with definite outcomes. Be certain, which means being certainly right or wrong, not indefinitely indeterminate. Too many of us hide behind a fear of failure and instead drift along in the middle of the pack without achieving much.
  • Concentrate your investments in a much smaller number of areas: in your professional pursuits, and your personal interests. As the new year begins, instead of asking yourself “what else can I start doing?” think about what you can stop, in order to focus your mental and physical energy on the few things you do best and enjoy most.

Does this resonate with you? Sound completely crazy? Leave a comment and let me know! Regardless, have a happy, healthy, and prosperous 2015.

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