The energy rule

There are some people and environments that give us positive energy. And, there are some people and environments that unfailingly manage to suck our energy.

If we have no choice but to spend time with the latter, we need to learn to interact with a complete lack of attachment and be “matchers” rather than “givers.” When we become matchers, we only give as much as we get.

Also, there’s a chance that someone who was a source of a ton of positive energy once no longer is. That happens, sadly.

The first step is to be aware and to identify the difference.

Then, when given a choice, spend time with the former. And, when doing so, work on building a life where we can do more of that.

Making policy decisions

A big part of being a good decision maker is learning how to make good policy decisions. Good policy decisions have, among other things, two attributes –

1. They understand the downstream consequences. You don’t create policy for the short term. So, policy makers spend time thinking about the downstream consequences.
2. They minimize exceptions. In doing so, decision making in the future can go on auto pilot.

As a simple example – a friend once asked me to share a list of the best books I read. So, I put the list down in a word document and sent it. Another friend then asked me for the list with a few notes on the books I recommended. A few months later, I got a similar request from another friend. Every time I got one of these requests, I groaned. Sometimes, I did justice and gave them what they wanted and, other times, I just forwarded them an older version of the list.

It only hit me a few months later that I’d be better off with a system solution. That’s how my book review blog was born. It made sense as it was one of those decisions that had very good downstream consequences. And, most importantly, it put all book recommendation requests on auto pilot.

This isn’t an easy thing to do, however. And, I find myself forgetting to do this regularly. But, if done well, it can help us become better decision makers.

So, every time you have a decision to make, don’t just make the decision. Instead, ask yourself how you should approach the decision by asking yourself how you would treat similar requests. Then, create a system/policy for similar kinds of decisions. Sometimes, all it takes is an extra minute of thought. That extra minute can save a lot of time downstream..

The tension between a debt tax shield and costs of financial distress – MBA Learnings

There’s been a lot of news over the years around companies who book their revenues in foreign entities and avoid taxes. Amazon, Starbucks, Google and a few others have been tried in courts because of an inordinate amount of revenue booked in Luxembourg. Let’s take a few moments to deconstruct this –

Let’s imagine a company earns $200 in revenue. Let’s also assume costs are $100 => Profits are $100 as well.

Now, the $100 is subject to tax. So, $30 goes to the government (assuming a 30% tax rate) and $70 goes back to the company as after-tax profits. If the company is a fast growing company like Amazon or Facebook, it’ll generally choose to re-invest the amount in growth. And, if it is a slower growth company, a large portion of this amount generally finds its way back to shareholders.

Given the incentives in place for the shareholders to maximize their wealth, the 30% tax is an “unnecessary burden” (if you take the point of view that taxes are nothing but a waste of cash forgetting that it is taxes that provide the infrastructure for businesses to thrive). As a result, companies typically adopt 2 common strategies –

1. Take on debt. Even if our imaginary company doesn’t really need debt, it takes on $1000 of debt. Assuming a 5% interest rate, it now has to pay out $50 this year. As a result, its profits are now $50 => the amount paid in taxes is halved to $15. Shareholders are happier.

However, debt comes at a cost. Let’s imagine this company invests the $1000 in a risky venture that doesn’t work. Now, it has to pay interests out of its core business profits. The good news is that it has a strong core business and the interest amount doesn’t dwarf the profits of the core business. So, in this case, we’re safe. However, when companies take on huge amounts of debt to fund large investments, they can often end up paying a lot more than interest in the form of “Costs of Financial Distress” or “Bankruptcy costs.” This happens when the market believes its debt burden is too high and the stock begins losing value.

The takeaway here is that there is an optimal amount of debt for every company where the benefits gained by paying lesser taxes are lesser than the costs of financial distress. That’s why capital structure (the ratio of debt to the overall value of the firm) matters.

2. Create foreign subsidiaries. If Luxembourg offers a 0% tax rate, it pulls companies toward investing in a foreign subsidiary based out of Luxembourg. This way, our imaginary company’s tax payers don’t lose any value to taxes. The only condition here is that the money earned in Luxembourg has to stay in Luxembourg. If the company tries to bring it to the US, it’ll have to pay the 30% in taxes. Large multinationals don’t have problems doing this, of course. There are plenty of local investment opportunities.

So, as companies become increasingly global, we’re going to see more of the foreign subsidiary strategy brought in to play. Given a company’s incentives, it is common sense to optimize its tax payments because its value in the market is driven by the value it returns to its shareholders. This conflicts with the interests of the regulators, of course.

But, if there’s one thing I’ve learnt about markets, they’re rife with conflicts of interest.

Waiting 15 minutes to try out a watch

I needed to charge my phone when I was out last weekend and went down to an Apple store in the mall and asked if I could borrow a charger. As my phone was getting charged, I thought I’d ask to try out a watch. I was politely told that I have to wait 15 minutes to try out the watch. Would I be willing to wait?

Since it would take that long for my phone to get charged, I said sure.

And, so, I waited. Every 5 minutes, I’d have one of the store folks walk up to me and say – “Thank you so much for your patience. You are #__ in queue.”

And, 15 minutes later, I was told I could finally try it. It turned out to be quite the anti-climax as the queue was for a blank watch with a screen wiped out. The wait was only to test how the watch feels on my hand. I soon realized I could have played with the watch’s user interface without waiting 15 minutes. But, as I walked out, I reflected on how ridiculous this would be in any place but an Apple store. If the screen is blanked out anyway, why not just have a few more straps lying around? While the official reason is that this is to guard against theft, I think they have other more strategic reasons.

Apple would like two things to happen with customers interested in the Apple Watch –
1. They want the trial to feel special – sort of like test driving a Lamborghini. Anticipation brings excitement -> Marketing 101.
2. The first generation of the watch is far from perfect. While I enjoyed playing with it and can see utility, it is similar to the first generation of iPhone. Potentially revolutionary, but not fun to use as yet. So, Apple would want the sort of person who wouldn’t mind waiting hours in the queue or, in this case, wouldn’t mind waiting 15 minutes to just find out how it feels. This sort of person would fall in love with the watch right away and wouldn’t mind the fact that it is buggy. This sort of person would also report the bugs and make sure the next version is much better.

Apple doesn’t want a customer like me. So, it does things that alienate me. Instead, it focuses on the real fans. Smart strategy.

The only caveat – there are very few companies that can pull this off. Don’t try this at home..

When everything is a bonus

We are wired to have our expectations rise as we take action. The more we work, the larger we think our year-end bonus ought to be. The more we care, the more we think we ought to be loved. The more effort we put in, the more success we think ought to follow.

But, of course, nothing really “ought” to happen. Nobody really owes us anything (except for stuff on a signed contract).

So, one of the best practices we can adopt is to treat everything as a bonus and do things because we enjoy doing them. This is easiest to see with relationships. Relationships break down when both sides have high expectations. The more the expectations, there’s more left unsaid, there’s more ego hovering about and this, in turn, leads to an unwillingness to concede. Rising expectations does nobody any good.

The best relationships, on the other hand, are just filled with love and affection. And, with this love and affection comes a realization that the most important part of love is to be able to let a person go with no expectation.

That approach works with most things in life. The more we can take action and re-calibrate our expectations to zero, the more happiness we’ll experience. So, take action and when you do so, do the best you can. Then, re-calibrate and move on to the next action. If anything good comes off what you did, let it be a bonus.

In fact, let everything good be a bonus.. because bonuses are awesome.

3 lessons from Kung Fu Panda

I watched both the Kung Fu Panda movies this weekend. Every time I watch them, I either learn something new or re-learn something valuable. This time, I learnt –

1. There is a natural learning cycle – understand yourself, play to your strengths, practice intensely and find peace within. When Po is initially selected as the dragon warrior, everyone focuses on what he’s not. He doesn’t seem to have it in him until Master Shifu realizes that everyone needs to re-configure their inherent assumptions on what makes a great fighter. We have to play to our strengths. Once he did that, the next frontier was “inner peace.” This has got to be my favorite all-time movie lesson. It takes a deep concept and makes it simple – understand who you are and be accepting of it.

2. Family is who cares. Po goes through an identity crisis in the second movie as he finally realizes that he’s adopted. As he understands his past and understands that it is our choices that make us, he realizes that he really is his foster father’s son. It is a lovely, poignant moment. And, it is a moment in which we’re all taken to that incredible realization – our family constitutes of people who care about us.

3. Staying excited. One of Po’s most endearing characteristics is his enthusiasm for all things Kung Fu. Despite becoming the dragon warrior, he responds to every new thing he learns with – that is AWESOME!

That was one of the ideas that stood out to me. Despite his excellence and learning, he never forgot that child-like enthusiasm and love for Kung Fu. He didn’t become a jaded know-it-all who lost his excitement at doing so.

I know I’ve been that jaded know-it-all many a time and I’ve learnt that it gets in the way of learning, gratitude and happiness. This was a great reminder of the importance of staying child-like, curious and foolish.

Creativity is a renewable resource – The 200 words project

Here’s this week’s 200 word idea thanks to Things a Little Bird Told Me by Biz Stone.

In his first job as a book jacket designer at a publishing company in New York, Biz Stone was tasked with creating jacket covers for books. He learnt that he was expected to design 6 (!) possible jacket covers per book. This felt like a huge, almost insurmountable, number.

His mentor, however, encouraged him to view the exercise as fun by sharing his two tenet philosophy on designing covers –
Tenet #1: Work is never wasted. If you loved it and the editor didn’t, just add it to your portfolio.
Tenet #2: You are not successful when you produce 6 covers but when you produce 1 that actually makes it.

So, Biz’s focus soon shifted from having to create 6 book jackets per book to creating as many necessary at make it successful. He soon realized that the experiences we gain as we create combined with a dose of curiosity drives us to make unexpected, offbeat connections. It is these nonlinear steps that often lead to the greatest work – in Biz’s case, it helped lead to co-founding Twitter.

And, thanks to this, he learnt a really valuable lesson – creativity is a renewable resource.

(PS: Here’s a post from Biz Stone’s blog from 2004 on “How to Design a Book Cover” :-))

Be as creative as you like, as often as you want, because you can never run out. – Biz Stone

Small things and big things

I once enlisted one of my wiser friends to help me with my writing. One of the lessons I learnt from him was that a sign of great writing is the ability to make the writing less about you and more about the subject. That’s one of the many reasons why I love Seth’s blog – the posts are hardly ever about Seth and his experiences. They are always about the idea.

I struggle with this and, in some ways, I’ve long given up on my writing abilities. These days, I’ve learnt to focus on the showing up and sharing bit. And, this is a long winded way of saying today’s post is another one of those that is centered around an anecdote. :-)

This afternoon, I went out for lunch with a friend – it was nice meeting him as we’d been in touch via blog and email for more than a year now as he consistently responded to my weekly “200 word project” notes every single week. It was great to meet him in “in real life.” Post lunch, we headed to a mall nearby as we both needed to get some shopping done. As I was getting done with my errands, I received a text from him. He was buying his first suit, was feeling totally lost and wondered if I might be able to help.

I knew exactly how he felt because I’d been in his position just a few years ago. I had moved to London and was about to fly out for an important client meeting in a few weeks. My manager suggested it was time to invest in a suit – I only had a blazer that wasn’t really a great fit.

This was the second important clothing recommendation he’d made. When I’d just moved to London, I had found my work attire inadequate by London standards. Big cities seem to be filled with folks with a lot of fashion sense and I needed to get with the program. So, he’d taken me to a T M Lewin store close to our work and suggested I buy their shirts. 4 shirts for a 100 pounds was a great deal for good quality shirts, he said. And, I listened. It was great advice. Now, it was time to listen to his advice again except for the fact that buying a suit can be an overwhelming experience if you don’t know what you’re doing.

Recognizing that, he did something incredibly nice – I used to often walk to the station with him on the day of the week I worked at the office (rest were at the client) and catch up. This time, he took me to the T M Lewin outlet that dealt with suits. In the 20 minutes that followed, he explained what I should look for, helped me get a sense of what colors would look good for the shirts I had, helped me narrow down on a grey suit and made sure I tried it on to see how it fit. It fit well, he said. And, I bought my first suit.

It was a small 20 minute odd errand from his side.. but it meant a lot to me. It was what I’d expect a parent to do.

So, when this friend reached out wondering if I might be able to help, I was glad to be able to pay a bit of the goodness I received forward. As he tested his suit out, I typed out a note to this manager and friend and thanked him for that lovely gesture. I also shared the story with this friend and asked him to pay it forward.

It isn’t always possible to help everyone who wants help, of course. I’m a big believer in making sure we’re selfish about taking care of ourselves first. This sounds like a contradiction, but, the more we feel taken care of, the more time we have to really give ourselves to others. And, when we put ourselves in a position to really be of help, every once in a while, we get an opportunity to help people with what might seem to just be a small investment of our time.

And, I’ve learnt to make those small investments as often as possible, because, as my manager demonstrated, a small thing for us can often be a big thing for someone else.

9 notes on competition

1. Our desire to compete is a manifestation of our insecurities. Our insecurities provide us the drive to succeed. Our drive is just an outlet for the competitive spirit that rises out of our insecurities.

2. There has been a lot written about the difference between healthy and unhealthy competition. The line between them is actually very fine and is flipped by a single switch – awareness. If we’re aware of our competitive instinct and the underlying insecurities, competition is likely to always be healthy. This is when we enjoy competing, enjoy winning and are good sports when we lose. However, the moment we lose that awareness, it becomes a race to the bottom.

3. The problem with unhealthy competition is that it is driven by looking outwards. We’re constantly measuring our success relative to that of others. This, in turn, results in a litany of negative emotions – envy, fear, and hate being the most dominant.

4. This is where companies that review performance  purely by pitting one individual over another mess up. While this is a legitimate method to measure performance, it is a sure shot method to curve long term improvement. The trouble with such review systems is that the atmosphere within the company becomes one of people jostling to become big frogs in the small pond. Destructive politics is the only outcome.

5. The right way to do performance reviews, in my opinion, would be a 1-100 sliding scale of how an individual has performed on various dimensions. One scale would be filled in by the individual (self assessment) and the other by the individual’s team members. This would make for an interesting study because the only basis for comparison would be the individual’s previous review and the level of discrepancy between the individual’s self assessment and that of the team’s. This would then need to be rolled up at a team level to then understand the effectiveness of the team – all the way to the top. The rationale here would be to raise self awareness (understanding where the discrepancies in perception lie) and to focus the competition on improving oneself (being better today vs. last year).

6. The best companies don’t set out to crush their competition. It is the wrong approach. They set out to be the best version of themselves and ship products/services that are simply too good to be ignored. In that process, they crush their competition. One is a process and the other is a by-product. Success is always a by-product of a good process.

7. There’s an interesting counter intuitive fact when it comes to competition. The best long term competitive strategy is to be intensely collaborative. When you focus your energies on being collaborative wherever possible, you rise above the competitive noise and focus on the work that needs to be done. In the process, you also build a stellar reputation for always leaving people and environments better than they were before you came. This is part of tough long and short term trade-offs that we must make. Sources of long term profits are often not friendly to short term earnings. But, they’re necessary if we plan to survive beyond the quarter..

8. The only way to re-focus our competitive energies from the long term is to choose to rise above our insecurities. This is easier said than done, of course. But, it is possible if we remind ourselves of the importance of the long term and stop reminding ourselves of our insecurities. This is also easier said than done. But, it is possible. And, that is what I’ll conclude with.

9. From my own experiments, there is only one way I know of to focus competitive energy from the short term to the long term. That is by only taking part in one kind of competition – the kind that competes with your own self. This kind of competition removes focus from everyone else and also kills all sorts of comparisons. Every time we’re in a new environment, it is tempting to compare our progress with that of our peers. There’s no good that can come from doing that. Every one has their own paths, goals and breaks. These aren’t apples-to-apples comparisons. We’re all typically working towards different ends. And, even if we are working towards the same ends, the results hardly ever matter. It is the process that counts.

All this brings me back to competing with ourselves. I believe that the only question we should be asking ourselves is – “am I better today than I was yesterday?”  If the answer is no, find out why. If it is because of your environment, change your environment. And, if it is because of you, understand what’s stopping you from learning.

That one question clearly brings a lot of good with it. However, it isn’t recommended because of that – I have come to realize that it is the only kind of competition that matters.