Using Mental Models & Principles for Better Decision Making – Andy Ayim – MicroConf Europe 2019

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0:09really honor to actually be here and be a part to me because I speak I speak quite often I speak quite often and it's very rare to attend events firstly that have such a beautiful scenic view but also that there's actually a true sense of community and every time I've entered in the elevator I've been walking in the walkways there's always been someone welcoming and saying hello introducing themselves and sharing a story and one of the common links that I'm seeing in these stories is that you know some of us work in quite isolated environments where were quite lonely we work alone and some of the places that were

0:44mentioned were little towns in the middle of Italy or actually like a town outside of London in the UK such as Bristol and it's nice to come together and know that we've got shared challenges in this room and as a community of people that we can turn to for that accountability and to help with making decisions just by a show of hands before I start how many people here chose what gender they were born wow that's pretty unanimous apart from the the genius over here so decisions such as that such as you know what socioeconomic background were born into or actually what city were born into

1:20were all variables that were outside of our control but as soon as actually we are born into these places we make a series of decisions across the lifespan of the lifespan of our life and it's not very often that we spend enough time thinking about thinking and today I want to do just that I want to spend some time actually introducing you to some of the mental models out helped me along the way to make smaller decisions it was quite interesting listening to Pelle dearly I run and given I his initial talk and no certain decisions that he made that were quite contrarian to what you usually hear like he released the

1:54last time you updated that software was in 2006 for my balsamic you know he doesn't look at analytics he was telling you yesterday over dinner you know and it's quite interesting sometimes when you read well you absorb this content and you feel like you're getting a formula that you want to apply to your business but in overtime when you get more confidence you start freaking out actually the guiding principles that you adhere to and the way that you make decisions regardless if it's if it agrees with the market or not so first I want to share kind of a few lessons that I've learned working in venture and I know it's got a

2:27love-hate relationship similar to Marmite and but venture caps was quite an interesting industry for me because about five years ago when I was blogging and really sharing a lot of content about this intersection that I was fascinated with in between startups investments and people of color I noticed that we were in venture actually less than 1% of venture capital goes towards black founders less than 5% goes towards women you know almost 95% was concentrated in just free states alone in the US and for me this was a hypothesis that I want to disprove I thought surely this doesn't mean that great ideas can't come from everyone

3:04after all talent is widely distributed but clearly in venture opportunity isn't so then I saw to join an accelerator and the sequel backstage capital and that kind of primary investment thesis was that they're going to invest in women people of color and LGBT founders and at the time the challenge was to build our accelerator program from scratch and invest 2.5 million into 25 different startups so I led the London program and during that that kind of like experience there's a few things that came up they're quite interesting firstly and VCS are not that into you the truth is they actually invest in less than 1% of

3:41new businesses created but yet on the media it feels as if that becomes a funding option for us you know this crowd is actually quite different in that respect and that a lot of you are bootstrapping and but you're going to get to a point some of you wear your ring crowded markets competed with people that funded and then you're going to have to consider in terms of cash flow where's that working capital going to come from and it's all going to come from an investment or it's going to come from leverage in debt the second thing that I know is that is in serving diverse founders a lot of them were

4:10non-technical so a lot of them actually couldn't actually write code a lot of their own style businesses such as hair care businesses or subscription boxes or tech enabled e-commerce businesses or direct-to-consumer businesses so actually the model of support and investment they needed was different and the third thing I noticed was that actually the true value in the frame Jaya is the value beyond the capital is actually how we provide value through our domain expertise similar to the mentors on the tiny seed program for example but also the relationships that we have them with the way we were able to introduce founders into certain place that are difficult to navigate even even

4:47into new partners or new customers or even potential new investors so next year actually what I'm working on as an entrepreneur in residence which really is a fancy word for actually I'll buy myself time while I'm working on my next idea is I'm working on an angel investing school that teaches investors how to invest patient long-term capital into founders basically providing working capital over a longer period of time and not being restrained by what would typically be VC returns or VC type businesses so we're training diverse operators how to start investing in businesses such as yourselves for example because one of the hard things especially as a bootstrapper is finding

5:27an angel investor or a single investor that's willing to invest in you when it's such an a fragmented market and what people end up doing is I've attended people they know whether their networks or going on AngelList or LinkedIn the second thing I want to touch on is is content community and capital and by capping what I really mean is actually products experiences and great product experiences that leads to revenue it's such a under undervalued option for founders to really double down on actually the most cost efficient and effective form of marketing which is organic which is free point out that content we had a talk on SEO this

6:04morning for five years for six years through forming communities like the community that you're part of now but around your products experiences like whose interest in actually you've even read in some of the story of yourself Rob where you've gone from creating blogs originally to certain new products to then a single sata2 of a single channel market for marketing to actually a group process tools to eventually form and rip but even if this conference is the same kind of story there was content at the beginning then was a community that was formed and that's leading to opportunities like us being in this room today and it's similar for myself I

6:38can't write alone a line of code but I always engage with my customers early and often so always get a sense of what problems they're suffering from and how to answer them and here on this slide is an example of that you know I sent a tweet out maybe two months ago to ask like people that follow me what blogs podcasts and newsletters do you read or subscribe to you and this gave me a list of 85 different newsletters blogs and and podcasts that I listened to but what this gave me was insight into understanding what content they're absorbing and what they actually like so I could write response pieces or

7:16record response videos to that but it also gave me insight into the places I need to feature because it showed me where their attention was and sometimes we think of competition we think of a competitive product when really the competition is web someone's attention is it's actually what are the existing alternatives that are taking them away from my product today and through forming that content it leads you them to understand actually where your consumers attention is and once you understand that you can double down on what's working and create community around it and this example here on this slide actually was where I did that I

7:49got that list of 85 I learned that a lot of people were struggling to learn how to for example break into venture I wrote a blog post about unconventional ways to break into venture by developing a burst personal brand because the first page of Google is now your CV whoever you like or not because when I add your LinkedIn or what I'm about to have a meeting with you if I'm interviewing a new staff member I'm going to google you and what comes up is gonna represent who you are to me as a first impression and then off the back of that I released an e-book

8:18could break it into new careers actually last week was like it sold 500 pounds worth of books after two weeks but you through go into that probe through that process of going from that problem which was discovered from content to form a community to releasing this product its accelerated that learning opportunity for me by going through that process and next I want to talk a little bit about thinking about thinking which is going to be the bulk of this talk today so I spend a lot of time probably too much time thinking about decision making and actually the compound effects of decisions that we make and one of the

8:52ways that has helped me along the years kind of keep accountable to my self is by keeping a journal and there's not many opportunities when you're in execution mode and you're very reactive to think introspectively around kind of the decisions you make and the results of those decisions so I just keep a Google Doc pinned to my tabs on my Google Chrome where I just write down key moments and key decisions and what I do every six to twelve months is look back and connect the dots and it allows me to track the results and understand actually what's a double download because it's working and actually maybe

9:25what to reduce or eliminate because it's not and I'd encourage you water consider doing something like that so that you have a mechanism of really like holding yourself accountable and looking back at what's working and what's not not only for your companies actually by even individually and personally so 15 months ago I joined backstage capital where I said I invested in women people of Karen LGBT founders and one of the things that this work really nurtured me to do is think about inclusion on a continuous basis and what it actually means and to me it means like who's not in the room you know so who's whose

9:59perspective is not being shared for example at this conference on stage or whose opinions are not being heard and acted on I that mean that you're having at work or whose voices are not being heard and acted on we're creating the very innovations that I serve in the world that we're living in I could tell you who's not in the room today my daughter or my fiancee so this is gonna give me an opportunity to get a few things off my chest I heard somebody saying on this little terror you share some worry about her so like many of you in the room many of the founders here

10:33she's a continuous learner and she loves to feed accuracy and one of the ways that she feeds her curiosity is when we take local trips to all to our farm and at the farm when the cows Moo she moves where the ducks quack she imitates them and quacks the horse is never named but she owned a anyway you catch my drift and then she'll probably publicly try and embarrass me further but getting us to sing songs together such as row row row the boat gently down the stream daddy crocodile crocodile huh if you see your crocodile don't forget to scream it's your laugh every time but I understand what my daughter's

11:10doing my daughter is leading on a general framework that she's learned that many kids her age do to learn through song and play but I also understand that my daughter's gonna grow up very differently than I did growing up here in Tottenham North London and so she should because she needs a different set of skills and experiences to navigate this life that she's gonna live but one thing that we do share is our love for spending moments alone in solitude in nature for some people that's when you're taking a long walk as when you're hiking when you're swimming and so some people even this morning going to the gym but for me is these

11:48long-term moments in nature where I can think deeply how do you make decisions on a consistent basis for my door is through song and play like I mentioned she sings songs about the alphabet numbers and even animals and that's how she's learned for myself mental models is how I consistently make decisions in a smart way because it holds me accountable to understanding why I made those decisions and how to make better decisions in the future so the three models that I really want to touch on today our first principle thinking second order thinking and inversion and just to know these are three out of a latticework of dozens of different

12:31mental models that that could be used for better decision-making such as the Pareto principle 80/20 or the sunk cost fallacy so our mental models in 1994 charlie munger chairman of berkshire hathaway a business partner to warren buffett gave a talk at USC business school that is talk he kind of shared his business and investing philosophy and in the process of giving this talk he introduced a crowd to a general framework for making wise decisions which he referred to as mental models by definition mental models are basically frameworks for thinking but it helped you do two things in particular they hope you understand and recognize how systems work and once

13:15you have that understanding they help you make spare decisions as a consequence so essentially it's about understanding the structure of a problem and learning what thinking system to apply to that problem by a show of hands how many people have invested in cryptocurrencies I'm surprised it's not more and no investing is actually maybe not the right word speculative trading could have been used as dead so in 2008 we saw a real spike right and it was quite interesting because so many people get involved with investing cryptocurrencies when actually we knew that there wasn't necessarily a value to the underlying asset it wasn't like we were going to a suit local supermarket

13:54picking out our fruits and us our goods going to - and paying by Bitcoin it wasn't as if even from your airports - here when you arrive along in the weekend you paid by litecoin so he wasn't seeing their everyday application - these what we saw was a mental model in practice called surfing and surfing is really just about riding the wave of a new technology product or trend but when you recognize this problem do you recognize what momentum what does that work the mental models that we're going to go through today share three basic components one they help you - they help you to challenge they challenge you to

14:31keep things simple and sometimes this is seen as actually a downfall of mental models because they simplify a complex phenomenon secondly they help you to reframe problems it is often useful when you're doing customer development or product discovery so that you're figuring out what the right problem to solve is for the right set of customers and finally although they're not a silver bullet they're an aids to help you think different not necessarily best solutions but to think about different solutions so first principle thinking is really about breaking down complicated problems into his component parts and then generated different ideas of solutions based off of that let's take

15:11my friend with the Elon Musk's as an example in 2002 he embarked on this journey and his quest to send the first rocket to Mars an idea that of course later became popularized as SpaceX and on this journey he went to speak to aerospace manufacturers to learn how much will cost to build a rocket sixty-five million dollars he's getting quoted that much to build a rocket so he decided actually rather than paying sixty five million dollars let me lean on my background studying physics and turns the first principle thinking so what he did instead was turned to the commodities market to figure out how much would it cost to buy each of these

15:48individual components you know things like copper carbon fibre and aluminium rocket grade aluminium alloys and when he did he found out that the cumulative total cost of those individual parts was two percent of the price that he was quoted so rather than pay 65 million he decided to sell SpaceX go to the commodities market actually buy these individual materials he built a rocket and ended up being 10x the price that he was quoted and he still made a profit first principal thinking is all about answering that kind of basic question of how would I start this problem from how I solve this problem from scratch more efficiently

16:32it's not about going to most granular level of a problem but usually about one or two levels deeper to get to a fundamental truth let's take the example of baking a cake this is on the weekend with my daughter so a cake is made out of a number of different component parts right we have your milk your flour your baking soda your butter your eggs and your sugar but those same individual components could easily be combined to make cookies Donuts cupcakes or even bread depending on how you reframe the problem a first principle is a basic truth that cannot be deduced any further I will take another example imagine that

17:14I'm starting a new e-commerce platform and I'm looking after for example just to check our experience and thinking about what payment system to implement I'm from the UK so let's take a UK e-commerce example there's three basic questions that we cannot answer to help us get to our first principle what we sure is absolutely true what has been proven and what are the facts here so let's take this working example what we know is absolutely true is that you cannot pay for cash who have cash for goods online know in the UK anyway what we know has been proven through benchmarking thousands of e-commerce stores is that at a minimum they will

17:59accept debit card transactions and what we know is a fact is that in the UK ninety-six percent of adults on a debit card so vast creating a walking skeleton MVP that payment system would at least need to accept debit card transactions second-order thinking so imagine now that we're in a crowd is your favorite festival let's say jay-z and Beyonce right I can tell there's a lot of fans in here and you tiptoe to get a better vantage point so that you can see the stage but almost immediately you lose the advantage because everyone tells tiptoes around you and obscures your view first-order thinking comes pretty simple and easy to most of us

18:46it's like tiptoeing to get a better view it's all about anticipating the results of our media actions but second order thinking about thinking further along not only about our media actions but the subsequent effects of those actions it's also known as the law of unintended consequences let's take another walk an example in the 90s HIV and AIDS was was kind of running rampant across Africa and millions of people were dying here every year and one of the contributing factors was the fact that big pharma companies was that big pharma companies used to make a lot of their money actually from getting patents on research or new drug technology and

19:29often sell that rate that's unaffordable to all of the developing nations so organizations such as the Clinton Foundation the African a African Union and a lot of the governments in Africa had to lobby them to produce these drugs for essentially free to try and control the crisis but in doing so of the six months you know it was ineffective and it wasn't that the drugs didn't work it was simply that the big pharma companies didn't take into consideration the unintended consequences and the facts that it's difficult to take medicine on time when you haven't got access to a watch or a clock let's walk through another example I always tell my

20:16daughter that she's not gonna need a driver's license when she grows up because she's gonna grow up in a world where they're self driving electric cars on demand I actually hate driving I wish that world was here now so that's walk three second-order thinking using this as an example first sort of thinking would tell us that there'll be a reduction in co2 emission because actually 50% of oil consumption goes to produce in petrol the second order thinking reminds us that actually does not actually giving me a need for petrol stations not many people know but actually the margins made that these petrol stations are all in a convenience

20:53store not the petrol hence you're paying like $10 for a crisp and a drink well a lot of people also don't know is that 50% of cigarettes a bought at these petrol stations so a reduction in distribution could potentially lead to a reduction in consumption furthermore 2,000 people in the UK die every year from row related accidents tobacco kills 25,000 people a year this is a good example for thinking through sometimes what doesn't seem like an immediate market to your markets that you're in can have an impact on the market that you're in so it's a black hole manufacturer has to have considerations for what electric cars can have on their

21:39industry but initially that's not very logical or easy to see let's take another example so if there's less cars on the road because we the humans are no longer driving there's hopefully less accidents the second or two think we would say that if there are then who's liable first sort of thinking would also say that is no longer a need for parking which means no more parking tickets the second order thinking locks how do we now use this space do we use it for productivity does it become a meet in space or office space there's become a space that we end up switching off and turning off and actually the car now

22:22used for a different purpose second order thinking is often very useful when you're making trade-off decisions between your long term goals for example on your quarterly roadmaps if you use roadmaps and your short-term gains for example what am I going to get through in this spring because sometimes it's hard to see that correlation of the cumulative impact of what I get through every sprint compared to actually the goals that I want to achieve over a long time horizon so often we think of forward thinkers innovators the optimists people that can no one would say think 10x are not 10% people such as Pep Guardiola and a beautiful game of

23:06football soccer you know he's won 17 trophies and the likes of Germany Spain and here in the UK or people such as Steve Jobs who needs no introduction arguably introducing us to the most successful consumer technology product in the last 20 years with the advent of the iPhone but rarely do we think about people who who can think backwards for great thinkers are able to think or forwards and backwards the great stoic philosophers such as Seneca used to do an exercise called premeditation malla rule and what they stood for and translates as is pre meditations of evil and what they would do is literally think of the worst case scenario such as

23:51losing a job or losing a home and then use that to intelligently plan when thinking forwards the psychologist Gary Klein called this pre morton's and pre-mortem is an exercise that many people use in an agile processes such as scrum before doing sprint planning and during this exercise what you would do is you would imagine visually that you've launched a product and six months down the line you've created a product that nobody wants is a disaster you're running out burning you don't know what to do and he start to list all of the reasons that I could have gone wrong and what this list really gives you is a list of risks that

24:32you can now reduce and eliminate or dependencies that you can now manage well thinking forwards and starting your plan to inversion is all about thinking about problems backwards starting with the end in mind and reverse engineering what problems could occur and using that to intelligently plan forwards by mitigating those risks and dependencies another more personal example is one of the things that I guess I'm scared of has been a really absent father so every week I get invited to maybe four or five events and if I attended each of them I would be very present at home because I believe the work I'll leave home in the morning while my daughter

25:13and my fiance sleep and I'll be coming home from work while they're sleeping so I said a guiding principle that no longer no more than two even as a week I'm not gonna dictate am I gonna go to any events or socialize or go to any work-related things therefore three days a week keeps me present but even when I am at home every five minutes my phone gets a notification I've rinsed what's up slack emails with an endless scrolling feed of Instagram so I said another guiding principle that in order to be treated present at home as soon as I get in the phone goes off goes into

25:48another room out of sight and out of mind and so far there hasn't been a works were any fires at work after doing that so we set these kind of guiding principles they give us boundaries to what we were willing to do and what we're really not to do you know I mentioned Warren Buffett before he's a great example of this he sticks to the core of his competence we're making decisions he invested in coca-cola and Bank of New York and Bank of America and made a lot of money doing so he didn't invest in Amazon he didn't invest in Facebook he didn't invest in any hardly any tech

26:20companies because it's not in his core of his comfort comfort competence and he's comfortable with that but what are you comfortable with we're making decisions are you 100% opportunistic who do you think consciously at what you say no to regardless of the impact a revenue opportunity inversion is all about finding that unhappy path that you want to avoid and considering the opposite these three things I really want to summarize when coming to MIT were thinking about mental models first principle thinking it's all about generating ideas from breaking down a problem into its core components second order thinking is all about the subsequent effect of our actions an

27:04inversion is the process of looking at a problem but backwards there's five feet key things I think I helpful forgetting started firstly link mental models to outcomes that you would achieve as Josh ID and the author says outcomes over outputs sometimes when we're in execution mode we get too stuck in producing outputs a lot rethinking of is really moving a meaningful needle to the metrics that matter secondly don't concern yourself with finding better decisions like I said this is about thank you finding different idea different solutions to the problems that you're facing and it just take one mental model and apply ahead of time keep it simple and keep it small we've

27:45gone through three or four today actually really but just start with one it starts simple then fourth like I mentioned at the beginning right you're learners down keep a decision log for me that's like Google dr. I referenced and finally stick with it it may feel a bit uncomfortable at first you have to remember that you're trying to form a lifelong habit here that impacts not only how you work but how you govern and make decisions in your wider life this is actually there's actually four books and a blog that I want to recommend to you and the first book is is principles by Ray Dalio

28:20where he shares kind of his guiding principles and how he makes decisions at work the second is super thinking by Gabrielle Weinberg and Laura makan which there's an range of different mental models and examples of their applications Thinking Fast and Slow probably needs no introduction by Daniel Kahneman and anti fragile by Nassim Taleb and the blog that got me started thinking about mental models at least five six years ago with the Farnam Street blog by shane parish so it touched a little bit about inclusion before and for me this quote really sums up quite beautifully become friends with people who aren't your age hang out with people whose first

28:59language isn't the same as yours get to know someone who doesn't come from your social class this is how we get to see the world this is how we grow and actually this is a community that actually lives and breathes that quote which is awesome one thing I didn't really account for at the beginning of this talk is that my daughter actually might see this talk on YouTube or Vimeo one day when she grows up and if she does use an inversion the worst case scenario is that she might actually cringe and dislike me for it she might give me the silent treatment the second order thinking tells me that perhaps

29:35there's a small probability that she'll get inspired to start using mental models to I think one of the greatest kind of gifts that parent can give a child is the ability to trust them to make decisions that are smart when they're not in a room and I hope when we can each relieve this conference at the end of these two days that we feel better equipped to make smart decisions using mental models to thank [Applause] [Music]