There’s No Money in Pragmatism Anymore

Traditional pragmatic thinking is no longer the most effective way to to create value and wealth. This is result of two trends:

1. Our world is increasingly complex – there are more inputs and more possible outcomes.

2. Knowledge is abundant. It’s more and more accessible. Google, Coursera, Udemy, Khan Academy all have increasingly commoditized “knowledge.” The limit on acheiving desire outcomes is not nearly as much knowledge as it was in the past.

The limit is on being able to use that knowledge in a way that lets people achieve their desired outcomes in a complex system.

Everyone Gets x+y=z. That’s what we’ve all been trained to understand in the modern education system. We all know how to figure out the “right” answer.

The problem is that there isn’t a right solution to most problems facing the modern world. Particularly the problems people are willing to pay to have solved.

The Cynefin framework differentiates between complicated and complex problems.

We’ve solved a lot of the complicated problems (those with a controllable number of variables, which can be solved by applying best practices – something you’d learn in a University). We’re now increasingly facing complex problems (problems with many possible solutions that require probing and testing to discover a solution that produces the desired outcome)

As Ron Davison explains in The Fourth Economy, these problems can’t be solved by 20th century pragmatic thinking. They can only be solved by systems thinking. By understanding the 2nd and 3rd order consequences.

That’s why there is more money in entrepreneurship than knowledge work now. Because access to knowledge is no longer limited. It’s access to results from complex systems that are limited.

The rise of personalized medicine is an interesting example of this. Before the internet, access to information about health and medicine was limited to trained, certified professionals. In order for someone in the 50s to be on the cutting edge of medicine, they had to do it from inside because that was the only way to get the knowledge – you had to go through the established channels.

That’s no longer true though. You can figure this stuff out by googling it now.

So the problem with the current stye of medicine and health is not as much knowing what to do as it used to be. Everyone knows at least one thing they could do to improve their health. Yet, most people don’t do it.

I read Gary Taube’s Good Calories, Bad Calories recently. It traces the history of the low-fat and high-fat diet movements and shows how for largely political reasons, the low-fat diet became more popular.

From an academic’s perspective, this makes sense. A gram of fat has 9 calories whereas a gram of carbs only has 4. So from a first order, pragmatic perspective, it makes sense to replace fat with carbs. Thinking pragmatically this means you would eat less calories and lose weight.

But what the academics missed was all the second and third order consequences of the system. Eating more carbs increases insulin levels which increase appetite so you feel hungrier. On a per calorie basis, fat is more satiating. So the outcome is that you end up eating more. This is a gross oversimplification of a system I don’t fully understand, but the point is that complex systems like human biology can’t be solved using complicated, “best-practices,” problem-solving methods.

It’s the practitioners, the gym owners and concierge doctors in the health movement, that are actually producing the desired outcome.

I don’t know much about the movements, but vegans, vegetarians, raw foodists and I’m sure other movements have all solved achieved far better results than doctors or academics as well. The commonality is that they’re actually in the trenches getting their hands dirty.

The American Heart Association can tell people to eat a high carb 1200 calorie diet all they want. It doesn’t work though because there’s factors at play besides X=Y=Z.

When you’re selling a product or service, there’s not that much money in selling people the “best practice” because access to that knowledge isn’t that limited anymore. For an increasingly large number of problems that can be solved by “best practices,” I can go out and google “best practices [insert here]” and figure it out myself without having to hire an expensive consultant.

While a consultant might still be worth hiring to execute the best practice, at that point, the service is basically a commodity and I’m just looking for the cheapest person that can get the job done.

So the limit of the system, where the money is, is in understanding the system so completely that you can get people to their desired outcomes in situations where there isn’t a clearly defined right answer.

That’s why international trade organizations hire Jon Myers to desire their user interface. There’s not a “right” way to design a complex user interface. They have outcomes they want to achieve and because Jon has a systems understanding of design and UI, he can create those outcomes. That’s not something you can Google how to do. There’s psychological factors, technical factors, design factors among others that play into it.

Jon’s good at what he does because he subscribed to the Helsinki Bus Station Theory. He developed a deep understanding through study and experience of all the systems involved in what produced his client’s desired outcomes. It’s something that involves so many factors that it can only be discovered through experience and deep practice.

Working on software has started to make this clear to me.

The barriers to entry to make products in general, be they software or physical, are coming down

What’s hard and valuable is to understand the whole system in such a way that produces people’s desired out comes.

I can go learn to code. I could teach myself Ruby on Rails for free or ridiculously cheap. And there’s still good money in doing that because a lot of people ( myself inlcuded) don’t want to invest the time or effort to actually learn to code Ruby on Rails. However, coding alone has limited upside because it’s a complicated not a complex problem.

Building a successful software business on the other hand is a complex problem – you have to understand all the factors that go into creating the experience. How does the backend interact with the user experience? How does the first run customer experience affect the lifetime value of a customer? How do you acquire users? How do you communicate between support, development, and marketing?

These are all complex questions that don’t have a right answer.

And the only way to figure that out is to do your research, make and educated guess, probably fail, and keep iterating.

So the process for building a business is something like start with best practices or best guesses, pivot as you understand the system better, jam to scale out that result and eventually systematize.

With Valet Up, we’re somewhere between rip and pivot. We basically looked at that way valet currently operates and tried to copy that system with software.

Of course there’s plenty of issues that result from that seemingly simple transition. The Lindy Effect is in full force. The current system of valet has been around for a long time because it works at producing the desired outcomes for a lot of reasons that aren’t obvious on the surface.

This week we realized that the current system we have set up for text requests isn’t going to be viable long term. The way it’s currently set up, if you’re a customer, you receive a card when you come in and it has instructions to text a number. When you do that, the valet attendant gets an notification on their phone to pull the car around. However there’s no text notification that goes back to the customer telling them that the car is being pulled around so people aren’t going to get out of their chairs.

Why? Because in order to send that message we have to pay a text message fee. And if we do that and someone uses a lot of texts, it is obviously is going to add a cost onto our side. So then we have to start passing that on to the customer by changing our pricing structure which changes the way we have to market and position the product.

We could just print a note on the tag telling people they won’t get a text back but there car is being pulled around. But will that ruin the premium feel of the customer experience? I don’t know.

Do our customers even really want their guests to be able to request texts by phone?

I’m not sure.

And that’s why it’s worth working on. Because it doesn’t have a right answer, but it is addressing a real and profound problem in the market. And that’s the intersection where there’s a lot of money waiting.

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  • http://WageFreedom.com/ Tom Mullaly

    Interesting essay Taylor.
    Re: the Valet Up return text charges, why not give the customer the option to choose any one of several free methods to tell the valet he wants his car, methods the valet would also pay nothing to use when he hits reply: Twitter, Whatsapp, even email, etc. No more obtrusive for the customer than texting a number. These options might even enhance the premium feel.

    • http://www.frontierlivin.com/ Taylor Pearson

      Not a solution that I’d thought of Tom. There’s always another possibility. We defaulted towards tech because it has to be something everyone can use and text is pretty ubiquitous right now. Email is an interesting thought though… could potentially be a value add if we built a list…might be something there!

      • http://WageFreedom.com/ Tom Mullaly

        Yeah I think capturing something is possible as long as I can get my ah, Lamborghini quickly.

  • John Neil

    Question: Do you think increasing complex systems will increase the value of being a connector? How would you propose to capture the value you create as a connector?

    Comment:

    Emailed to you b/c it’s long and unfocused, feel free to post if you want.

    • http://www.frontierlivin.com/ Taylor Pearson

      Re: Increasing value of being a connector – I’m not sure. I think technology is making it increasingly easy to be a connector and be connected so the barrier to entry and value of old school connector types is falling. At the same time, there’s a lot more noise so being able connect to the non-bullshitters is probably getting more valuable.

      Re: Capturing the Value – Through connections? Not sure. Perhaps I’m naive, but I tend to think it’s worthing go after something that’s valuable even if the path to monetization or “value capture” isn’t clear. The LBP is the most clear example of that for me. They knew there was value there but it took them almost 2 years to start the DC on the back of it.

      Re Comment (copied Below) :

      From John Neil: I read Davison’s book. I have to say, at first read it was compelling but it’s lost a lot of appeal for me. I would be willing to change my mind, but at this point I find it to be an apologist piece for “new entrepreneurship” aka low level, small organizations.

      I still buy into the ‘limiting reagent’ theory he uses – at first it was land, then capital, then knowledge, and now creativity. But one major point of the book hinged upon transaction costs as a reason for a new boom in entrep activity.

      These days, when authors mention Coase/transaction costs I get suspicious. This past year I’ve read a whole bunch of books that claim lowering of transaction costs is great because it allows new activities to happen that never would have in the past. But for most of those activities their scale, impact, and value is low. Open source, API’s, etc are examples. Lowering transaction costs allow ‘smart copies’ and ‘remixing’ to be done more easily, but does that really move us forward? It seems to me that original creations are more important than all that stuff.

      My Response:

      I buy into Davison pretty wholeheartedly, but I’ve bought into a lot of books and felt differently, 6 months, a year, and five years later. I laughed at myself reading it a few times because the book it most reminded me of was the communist manifesto because it’s so all encompassing in it’s framework.

      To be honest, I hadn’t even considered the transaction cost question until I read your email. I imagine your POV is colored by working at an accelerator and mine by working at a more “lifestyle” business.

      I guess the way I see it is that it’s a scale. ‘Smart copies’ and ‘remixing’ are as you say more easily done, but have a lower potential upside. The original creations are far more likely to fail but have an exponentially greater upside from the founder’s POV. It’s just a security/upside tradeoff.

      On a societal level, I’m not sure to be honest. I’m not sure I even buy in to how valuable tech is to be honest. I don’t thing people are profoundly more happy know than 100 years ago despite the dramatic increases in material wealth. The value for me is the opportunity to do something meaningful and purpose-driven.

      At the same time I do sort of feel like if I’m going to get out of bed in the morning, I might as well change the world.

      Which all to say. Great question! Not sure…

  • http://www.beachheadmarketing.com/ Steven Moody

    Nice write-up.

    How can you teach complex problem solving?

    • http://www.frontierlivin.com/ Taylor Pearson

      I think that in itself is a complex problem. And whoever answers it owns an asset worth the entire University system right now and then some.

      The best answer I’ve come up with is that it’s consume–>produce–>learn done iteratively for a lifetime.

      I think perhaps it’s synonymous with wisdom?

      It seems like people that are good at it have a lot of useful mental models built up in whatever their field is. That’s one of the many reasons I enjoy your company so much, you’re sitting on all these super useful mental models.

      I feel like as I start putting together more and more of my own and borrowing others (more the later than the former) I’m building up a war chest of complex problem solving tools that I can take into different situations and apply.

    • http://www.matthewnewton.net/ Matthew Newton

      Regarding teaching this – there’s two ways to it isn’t there.

      To either try to make people smarter.. or to make them humbler.

      For example, looking at the Lean Startup, the method works so well because it’s about humility – it’s about accepting that you don’t know everything, that our intuition is most often wrong, and using that realisation in your business methods through a long series of small tests. I love that kind of thinking.

      Looking at the school system right now you can see that exact problem. “Let’s get smarter teachers”. How? By increasing the amount of pay. Which is beyond unsustainable.

      OR, as Taylor alluded to above, you make them humbler – accepting something like Khan academy is just as good a teacher of the raw material as the best will ever be and that the usage of data will make us all smarter.

  • http://www.matthewnewton.net/ Matthew Newton

    What are you guys using for texting? Twilio?