Richard Branson In His Own Words

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Edited By Danielle McLimore 2013,2020
This is a book with Richard Branson’s quotes for many things including entrepreneurship and dyslexic>

“I think as much practical experience as people can have, the better… I’m dyslexic, so I know that I learn the most from practical experience. The more one can actually make a school act practically, the better.

As a small-business person, you must immerse yourself 100% in everything and learn about the ins and outs of every single department… And as the business gets bigger, you will have to decide if you’re a manager or an entrepreneur. If you’re a manager you can stay with that business and help it grow. If you’re an entrepreneur, you need to find a manager. Then you should move on, enjoy yourself and set up your next enterprise.

If a bank or other investor is looking at your business, they have almost certainly looked at your competitors as well. In your presentation, therefore, it’s imperative that you understand your competition and irreverently explain why your business will do better. Blow them away! Avoid being overly negative.

Don’t be afraid to take calculated risks. Sometimes they turn out to be less dangerous than the sure thing.

Regarding Virgin’s status as a set of more than 300 separate private businesses : I think we’ve proved that a branded group of separate businesses, each with limited liability for its own financial affairs, make sense. We’re never going to have a Barings Bank situation where a rogue trader is able to bring down the whole Virgin Group.

There have been times I was almost bankrupt, and I was very glad to see my name in the Sunday Times “Rich List” because I thought it would assuage the bank manager. (The figures were often wildly off the mark both ways -but I wasn’t complaining)

The key to success is unwavering commitment and focus. You will make mistakes as you launch your product or service – a ton of them. But keep your eye on the prize and never blink.

Strangely, I think my dyslexia has helped … for instance, when we’re launching a new company, I need to be be able to understand the advertising. If I understand the advertising, I believe that anybody out there can understand the advertising.

I can’t speak for other people, but dyslexia shaped my – and Virgin’s – communication style. From the beginning, Virgin used clear, ordinary language. If I could quickly understand a campaign concept, it was good to go. If something can’t be explained off the back of an envelope, it’s rubbish.

We soon found that [social media] channels were an amazing tool for reaching our customers and the public. One of the first things we learned was that our new social media accounts gave us a real-time view of how we could improve.

Regarding how he decides to launch a new business or product : There’s no point in us going into something unless we can really shake up an industry, make a major difference; unless it’s going to enhance the Virgin brand, if there’s any danger of damaging the brand in any way, even if it’s going to make us a lot of money – you know, cigarette companies or something like that – we just wouldn’t do it. And because life’s short, we want to enjoy the experience.

Some people might see Virgin’s 50,000 employees as a cost to be managed, but I see 50,000 potential passionate brand ambassadors.

If you don’t lead a healthy lifestyle, your productivity will be completely screwed.

Fear stops people from doing so many things. Don’t be afraid to talk to people you don’t know, or try a new skill. They are probably just as nervous inside, and if you make the effort, people will often surprise you with a warm welcome.

Innovation can occur when the most elementary questions are asked and employees are given the resources and power to achieve the answers.

Not everybody is cut out to be an entrepreneur. But that doesn’t mean you can’t still come up with new ideas working within an organization. This is where intrapreneurs come in : They unleash the power of innovation from inside companies.

When we lose touch of our intuition, we naturally become more risk-averse and conservative. At Virgin, we like to work fast, to try ideas, see if they stick and find new solutions and new innovations if they don’t.

We have one planet in our solar system that’s habitable and that’s the Earth, and space travel can transform things back here for the better. First of all by just having people go to space and look back on this fragile planet we live on. People have come back transformed and have done fantastic things. There’s a wonderful book called “The Overview Effect”

Frank Wright’s term, the “overview effect”, describes a cognitive shift resulting from seeing the Earth from space that increases some astronauts’ sense of connection to humanity, God, or other powerful forces.

For a relatively small amount of money, you can make a big difference to a lot of people’s lives.

Basic Income is going to be all the more important. If a lot more wealth is created by AI, the least that the county should be able to do is that a lot of wealth… goes back into making sure that everybody has a safety net.

I constantly meet a growing army of entrepreneurs around the world, and when they ask me if I have one single message which will help them, I tell them it’s this : Doing good can help improve your prospects, your profits and your business, and it can change the world.

How I built this Part 2

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By Guy Raz (2020)
The Unexpected Paths to Success from the World’s Most inspiring entrepreneurs

After finishing this book, I think this must be the best book that I have read since the start of the year. I was particularly very impressed with the last few chapters of the book. The author Guy Raz must have put in lots of effort to write this book.

Part 3 The Destination
Mission is important
Founders who approach their businesses with a “mission first” focus tend to be better equipped to handle the lure of unrestrained and manic growth that has damaged or even sunk so many companies with early potential.

Having a defined mission is even more valuable when money is scarce or growth is anemic -especially for younger companies – because it gives them a reason to keep on fighting.

Build a Culture, Not a Cult
Create a lasting culture by building a business with a shared set of values. That shared sense of purpose and values, more so than money or profitability, is what explains the longevity of a company. Write down your values. Without knowing your values, you are going to make decisions that are inconsistent, and you have to have consistency to inspire your sanity. I was thinking maybe that’s why companies like Apple can still continue without Steve Jobs as the values and culture continue to exist in the company.

Think Small to Build Big
Uber alone has raised $20billion in the 10 years since the founding, and yet for for every Uber, there are a hundred Uber competitors or “Uber for _____” companies that never made it. The possibility of succeeding in that kind of capital-intensive, winner-take-all environment has always been much lower than in finding a small niche related but adjacent to a massive boom and building a business there.

Herb Kelleher of Southwest Airlines used the line “Think small, act small and we’ll get bigger. Think big, and act big, and we’ll get smaller. He cautioned them not to think or act like the bigger airlines; not to enamored of what it appeared they had, not to compete with them on their terms. Instead if Southwest just stuck to what they did best, he believed, if they operated within their means and according to their founding principles, if they stayed in their lane, everything would work out, and major opportunities would present themselves.

Manage Partnership Tensions
Neglect is among the worst things that can happen to partnership or friendship. I feel for two person especially in a marriage to be involved in the business will be extremely difficult. Although the author didn’t explicitly say it, but it seem that marriage and partnership in a company don’t mix else it may lead to divorce.

Be kind
Whatever your choices as a founder, a robust set of ethics should sit at the foundation. Beyond that, only 2 things are truly necessary when it comes to building a kind, long-lasting company. One that that things you do advance your mission and match your values. And two, that you do them from the beginning, precisely because mission, values and culture are generally so hard to change.

What you do with your luck
The author ask Rod Canion, the founder of Compaq Computer, for the nature of his success and he took a long beat before responding. “If you asked me that in the late 80s, I would probably have said that it was 90% intelligence and insight and work and 10% luck. But I would say today it was the other way round. That tells you how perspective changes with time.

How I Built This Part 1

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By Guy Raz (2020)
The Unexpected Paths to Success from the World’s Most inspiring entrepreneurs

I am quite impressed by this book. It seems that every chapter gives a very clear idea or thing you can pick it up. The author Guy Raz must have spent lots of effort on this book.

Chapter 1 ” The Call”
The way to get startup ideas is not to try to think of startup ideas. It is to look for problems, preferably problems you have yourself. You should only work on problems that exist.

Chapter 2 “Is it Dangerous or Just Scary?”

Even starting from chapter 2 “Is it Dangerous or Just Scary?” makes me sit up and think. He uses the analog of bathtubs vs sharks. Bathtubs should be 365 times as frightening as sharks, but its the reverse. In reality, bathtubs claim one American life every day and sharks claim only one per year on average. So why are we thinking it this way?

The reason for this is fairly simple : We are more relaxed around things we are more acquainted with. This makes me think about my current job. It is actually more dangerous to continue to stay on, but its not that scary now. Rather than waiting for technology to disrupt me, I should go around explore more other options.

Anyone who found their success after leaving the relative security of higher education or their previous profession would be utterly unsurprised by the choices that Jim Koch (Boston Beer Company) and Michael Dell (Dell computer) made in 1984. They all talk about the initial uncertainty and the scariness of the unknown. But then those concerns melt away as they reflect on the even greater dangers of regret and squandered opportunity, and as Jim puts it, waking up at 65 years old only to realize that they have wasted their lives.

Chapter 3 “Leave your safety zone. .. but do it safely”

That is the buoying effect of not quitting your job right away and have a fallback plan for when you do. Some of the entrepreneurs continue their job while they startup their company. For example one of the entrepreneurs Daymond eased himself into the entrepreneurial life. It was 40 hours at Red Lobster (being a waiter) and 6 hours at his startup. Then it was 30 hours at Red Lobster and 20 hours at his startup.

Chapter 4 “Do your research”

There is a famous line from Steve Jobs. He said .. People don’t know what they want until you show it to them” What a lot of people don’t know is that there is an important insight at the end of that quote, that inexplicably always cut off, and that statement from Jobs is particularly relevant here : That’s why I never rely on market research.”

All the market research you personally do wasn’t done so that you can collate and regurgitate it back out into the marketplace to give people what they said they wanted. Rather, it was to build a foundation of knowledge on which they could leverage their creative instincts and their professional judgement in order to truly innovate and deliver what dissatisfied customers really needed. You rely on research to teach how to build a plane – which gave them the confidence to lean on their instincts and trust their creative visions when it came time to decide exactly what kind of plane they wanted to build and fly. This has been a winning combination countless times in the history of new ideas.

Rise of the Financial Ruler

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By Paul See (2017)

The cover of the book definitely attracts me to take it up for reading. Although many of the ideas shared are pretty general knowledge, but the way it is being presented, it is rather interesting.

Introduction Pointers
Shore up savings especially during peaceful times. There is the importance of emergency fund and safety net, the red portion of the Financial Ruler. One will never know when money will be needed urgently and hence, it would be more prudent to leave such funds untouched until the occurrences of critical situations such as loss of income.

Crisis often strike when least expected, and savings after a crisis had already occur too little, too late.

Develop the habit of looking out for opportunities.

Good Years : Year 1 Pointers
Different groups of people see different opportunities when they hear the same news. A person should start financial planning as early as possible because money will take time to grow. Expenses are no longer similar to that of the past, we must ensure that transport cost do not exceed 20% of our income.

Year 2 Pointers
Understand what we are buying into instead of following the crowd. When you understand the assets that are being brought into, you would possess the ability to manage and grow your wealth.

Year 3 Pointers
It is preferable to keep expenses to the limit of 55% when added together with all other serviceable debts. Without the discipline to stick to guidelines, the finances can spiral out of control.

In this modern age, if we keep saving in this modern age or held onto most of our cash, we are still bound to lose money because inflation would likely exceed the deposit rates financial institutions are paying out. We must stay open-minded and be constantly willing to improve our financial knowledge.

Year 4 Pointers
Assets are resources that put money into our pockets, while liabilities take money out of our pockets. Conventional assets such as property need not be true assets because the mortgage payments attached to it would sink us deeper in debt. Such mortgage payments should not consume more than 35% of our income in the Essential Net. It is also important to keep track of how much income is taken away from us through taxes.

Year 5 Pointers
10% of our income should be Edu-Fun net of the financial ruler, dedicated for the purpose as an investment into journey of self-improvement. Education is the best form of investment because you can control your own returns. The charity portion of the Edu-Fun Net covers the act of charity and giving back to our parents.

Year 6 Pointers
Be careful of frauds such as pyramid schemes.

Year 7 Pointers
It is a common misconception that being asset-rich meant that one was wealthy. Passive income is a better indicator of one’s wealth. Passive income allows people to pay for their monthly expenses. We need to consider whether we could maintain our current lifestyle in good and bad times. You can start by tracking your expenses daily.

Bad Years : Years 8 Pointers
Within most people’s lifetime, there will be a similar (example SARS) or even more severe epidemic. Biologically the flu viruses are getting stronger and developing greater resistance with time as they evolve every season. It would be wise to prepare for such a catastrophe and to ensure even if we lose our health or job during such crisis, we are still able to support ourselves and our family.

Be aware that another economic crisis is bound to happen again unexpectedly and recessions will always reoccur in cycle.

Years 9 Pointers
If we are employed and work for others, we will always be subjected to the fluctuations of the industry and the hiring policies of the firms we are working for. This brings us again to the importance of passive income streams and emergency funds.

Years 10 Pointers
Ever since the dawn of man and creation of money, frauds and bubbles have impacted many individuals’ lives and livelihoods. Despite rising global literacy rates over the past decades, frauds and bubbles have impacted many individuals’ lives and livelihoods.

Years 11 Pointers
People will become more restless as they lost their jobs. Tough times usually strike quickly and the economic climate deteriorates rapidly as it is fuelled by fear. Furthermore, each one of us is certain to fall sick someday. If we fall critically ill, we would hope to receive the best medical care and attention. A severe medical condition without sufficient insurance coverage might lead to the financial collapse of a person and his family.

Years 12 Pointers
It is difficult to follow the guideline of the Financial Ruler in bad times. While it may seem absurd to continue diverting money into the Edu-Fun Net even during a recession, we must never forget that we still need to spend some effort to treat our loved ones to the simple joys in life. Do not work hard for money, make money work hard for you.

Years 13 Pointers
When finances are well-planned, it offers us flexibility and peace of mind. When we save 10% of our annual income for retirement per year, in 10 years’ time, we would have saved the equivalent amount of 1 year’s worth of income. This is assuming that our annual income remains unchanged over the decade. This is the power of giving sufficient time for our pot money to grow.

Years 14 Pointers
We would blame everyone else first before ourselves when we fall victim to financial misfortune. Rather than always blaming others for our own mistakes which we could have prevented, we should think of how we could better adapt to this modern environment where monetary and budgetary issues surface daily in our lives.

Life After Google

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The fall of big data and the rise of the blockchain economy
By George Gilder (2018)

The title of this book alone already appeals to the reader.
The founders of Google giving away free things to be used on the internet stem from their religion of Burning Man. It is like a common cult : a communitarian religious movement that celebrates giving – free offerings with no expectation of return – as the moral center of an ideal economy of missionaries rather than mercenaries. It conveys the superiority of “don’t be evil” Google. So if you understand their 10 Principles of Burning Man, you will have a deeper understanding of Google.

  1. Radical Inclusion : no prerequisites for participation
  2. Gifting : Offerings with no expectation of return
  3. Decommodification : exchange unmediated by commercial sponsorship or advertising, “exploitation”
  4. Radical self-reliance : depend on inner resources
  5. Radical self-expression : art offered as a gift
  6. Communal Effort : Striving to produce, promote and protect social networks, public spaces, work of art and methods of communication that support human community.
  7. Civic responsibility : value civil society and obey laws
  8. Leaving no trace : the ecological virtue that contrasts with industrial pollution and human taint.
  9. Participation : Radically participatory ethic; transformative change, in the individual and society, can occur only through personal participation that opens the heart.
  10. Immediacy : no idea can substitute for immediate experience. Participation in society, and contact with a natural world exceeds human powers.

    Echoing the 10 Principles of Burning Man is Google’s corporate page presenting “Our Philosophy” a guide to the system of the world in the form of 10 things we know to be true.
    1. Focus on the user and all else will follow. ( Google’s “gifts” to the user bring freely granted personal information, mounting to the revelatory scale of Big Data )
    2. It is best to do one thing really, really well. (To dominate the information market you must be a world champion in “search and sort” fuel by artificial intelligence, you must be, for the purpose of your domain, almost omniscient)
    3. Fast is better than slow (Fast is better than careful and bug free)
    4. Democracy on the web works (But Google itself is a rigorous meritocracy, imposing a draconian rule of IQ and credentialism)
    5. You don’t need to be at your desk to need an answer. (We better buy AdMob for mobile ads)
    6. You can make money without doing evil. (Academic preening that implies that “most great wealth is based on a great crime.” If fast and free covers a multitude of sins, Google is proud to compensate by running its datacenters with net-zero carbon footprint through solar and windmill effects)
    7. There is always more information out there. (Big Data faces no diminishing returns to scale)
    8. The need for information crosses all borders.
    9. You can be serious without a suit.
    10. Great just isn’t good enough. (We are casually great)

      However, as the author point out, nowhere in their philosophy mention about the need for security. When security is done right, it is done as a community. Security is at the heart of the problems of the Net. and in this case, Google is a source of problems rather than answers.

      “Free” is a lie, a price of zero signifies a return to the barter system. You pay not with money but with your attention. Hence, you pay in time. If it is free, you are part of the product.

Uncanny Valley (A memoir)

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Uncanny Valley (A memoir)

By Anna Wiener (2020)

I am not sure why I pick up this book to read. Guess maybe its because I used to work in the tech industry when I was in my early 20s. At the start of the story, the author said that she was very broke. As she had graduated college debt free, hence she can work in publishing. (Probably publishing does not pay well)

In beginning 2013, she joined the e-book startup and subsequently worked in some tech companies till 2018 when she leave the industry. Here are some extracts of the book that I like or find it giving a different insight.

“Pivoting meant that they had changed their business model in an effort to generate revenue. Pivoting meant they were worried about runaway. Pivoting meant they were a cautionary tale. Only the two cofounders were left, tucked off to the side. Everyone else had been let go once funding ran out.”

“No one had warned me that in San Francisco and Silicon Valley interviewing was effectively punitive, more like a hazing ritual than an airtight vetting system.”

“Not everyone knew what they needed from big data, but everyone knew that they needed it”

“Our bread and butter was engagement : actions that demonstrated the ways users were interacting with a product. This was a turn away from the long-running industry standard which prioritized metrics like page views and time on site, metrics that the CEO called bullshit”

“It wasn’t our customers’ payment, contact and organizational information – though we could see that, too, if we needed to – but the actual data sets that they collected on their own users.”

“free services usually meant users were being exploited in one way or another. The most straightforward way to exploit them, naturally, was through rapacious data collection. “

The Fourth Age

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Smart Robots, Conscious Computers, and the Future of Humanity By Byron Reese (2018)

You can gain a lot of insights from this book. It is interesting to know more of these ideas, but because it is quite a thick book, you have to spend more time slowly digesting it, which for some people can find it a little dry. I find that the author writes more emotionally and makes a greater impact at the last few chapters.

The author has said that things have only changed 3X in human history. Each time was due to technology. Not just a single technology, but groups of interrelated technologies that changed us in a fundamental and permanent, even biological, ways.


1. First Age : Language and Fire
2. Second Age : Agriculture and Cities
3. Third Age : Writing and Wheels
4. Fourth Age : Robots and AI

Once the change really gets going, it will happen rapidly.

Will Robots take all our Jobs?
The author list 3 possible outcomes :
1. Robots and AI take all the jobs
2. Robots and AI take some of the jobs
3. Robots and AI take none of the jobs

Most technological advances don’t eliminate entire jobs all at once per se, but only to certain parts of the jobs. And they create new jobs in entirely unexpected ways. When ATMs came out, most people assumed that they would eliminate the need for bank tellers. But what really happened?

Well, of course, you would always need some tellers to deal with customers wanting more than to make a deposit or a cash. So instead of a branch having 4 tellers and no machines, they could have 2 tellers and 2 ATMs. Then, seeing that branches were now cheaper to operate, banks realized they could open more of them as a competitive advantage and guess what? They needed to hire more tellers.

Are there Robot-Proof Jobs?
A good method for evaluating any job’s likelihood of being automated is what I call the “training manual test.” Think about a set of instructions needed to do your job, right down to the most specific part. How long is that document? Think about a posthole digger vs an electrician. The long the instruction manual, the more situations, special cases and exceptions exist that need to be explained. Interestingly, when surveyed, people overwhelming believe that automation will destroy a large number of jobs but also overwhelmingly believe their own job is robot-proof.

There is one example that I like from the book.
Imagine a person called Jerry who mows lawns for a living. Jerry graduated from high school but has no more education than that. Let’s say someone develops a self-driving lawn mover that sells for a low price and Jerry suddenly sees the bottom drop out of the lawn-mowing profession.

Now Jerry has to find a way to add value. Then he has a job. Jerry might, for instance, learn on the internet how to plant and maintain grape arbors. I am not saying Jerry becomes a horticulturalist. He just reads enough to learn about how to plant and grow grapes. He then goes door to door with his message about the joys of growing your own grapes.

Then 20 years later, Grape Arbor Robotics comes out with a robot that can plant vastly better arbors than Jerry can. So what does he do? He can read up on landscaping in the Victorian era. Then he goes door to door offering to plant historically accurate shrubs and flowers in his historically accurate arrangements. Someday a robot will be invented to do that, but Jerry will have retired by then.

Non obvious Mega Trends Part 2

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By Rohit Bhargava (2020)

2019 Trends at a glance
1. Strategic Spectacle (Trend Longevity Rating : A)
Brands and creators intentionally use spectacles to capture attention and drive engagement.

2. Muddled Masculinity (Trend Longevity Rating : A)
Rising empowerment of women and re-evaluation of gender are causing widespread confusion and angst about what it means to be a man today.

3. Side Quirks (Trend Longevity Rating : A)
Global shift towards individualism drives people to follow their passion, start a side business and appreciate quirks in one another.

4. Artificial Influence (Trend Longevity Rating : B)
Creators, corporations and government use virtual creations to shift public perceptions, sell products and even turn fantasy into reality. People are fighting back against this and demanding more authenticity.

5. Retrotrust (Trend Longevity Rating : A)
Often unsure of whom to trust, consumers look back to organizations and experiences with brands that have a legacy as well as those with which they have a personal history.

6. B2Beyond Marketing (Trend Longevity Rating : B)
B2B brands use non traditional methods to embrace their humanity and reach decision makers along with a broader audience. Although it was well predicted and quantifiably true, it struggle to accelerate because of the resistance so many B2B bands have to different thinking.

7. Fad Fatigue (Trend Longevity Rating : A)
Consumers get weary of innovation claiming to be the next big thing and assume none will last long.

8. Extreme Uncluttering (Trend Longevity Rating : A)
To simplify their daily life, people shed their excess stuff and seek pared-down experiences and ways to unclutter their digital identities too.

9. Deliberate Downgrading (Trend Longevity Rating : A)
As tech-enabled products become overbearing, consumers opt to downgrade to simpler, cheaper or more functional versions instead.

10. Enterprise Empathy (Trend Longevity Rating : A)
Empathy becomes a driver of innovation and revenue as well as a point of differentiation for products, services, hiring and experiences.

11. Innovation Envy (Trend Longevity Rating : A)
Fear leads entrepreneurs, businesses and institutions to envy competitors and approach innovation with admiration or desperation.

12. Robot Renaissance (Trend Longevity Rating : A)
As robots adopt more human-like interfaces and micro-personalities, they are raising new questions and issues about how we relate to technology.

13. Good Speed (Trend Longevity Rating : A)
The urgency of the problems facing humanity is inspiring corporations, entrepreneurs and individuals to find ways of doing good and generating results more quickly.

14. Overwealthy (Trend Longevity Rating : A)
Growing income inequality leads to more guilt among the affluent prompting them to seek more ways to give back.

15. Passive Loyalty (Trend Longevity Rating : A)
As switching from brands becomes easier, companies re-evaluate who is loyal, who isn’t and how to inspire true loyalty.


Non obvious mega trends Part 1

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By Rohit Bhargava (2020)

This is an interesting book that talk about trends. I extract a portion of the book which I personally find it interesting.

Trends might offer a signal that you should consider abandoning an existing product line or staying the course in a direction that hasn’t paid off yet. Or they could suggest that you should pivot the focus of your career to learn new skills. What gives you the power to receive these signals and reach these conclusions is intersection thinking. It is a method for connecting disparate concepts and beliefs from unrelated industries to generate new ideas or products.

There are 4 ways to engage in intersection thinking effectively :
1. Focus on similarities
2. Embrace serendipitous ideas
3. Wander into unfamiliar
4. Be persuadable

Focus on similarities

An agricultural company created so-called baby carrots – 2 inch long carrot pieces that doubled the carrot consumption in the United States. However, sales had slumped. The company turned to an advertising agency for help. The agency was struck by how much baby carrots and junk food have in common. Hence the advertising campaign “Eat them like Junk Food”. Sales immediately shot up more than 10%.


Embrace serendipitous ideas

Howard Schultz was at a trade show representing Starbucks in Milan. At that time, Starbucks was supplying high-end home brewing equipment. On the way to the convention, Schultz was struck by how many Italian espresso coffee shops he passed. These shops offered people a third place for gathering – neither their home nor work. When he returned to Seattle, he persuaded the owners of Starbucks to create a similar retail coffee shop in the city.

Wander into unfamiliar
Despite an ever-expanding universe of media options to choose from, we tend to watch the same shows, visit the same websites, and read the same magazines and newspaper because we find comfort in the familiar. But what if we didn’t? what is you didn’t?

Wandering into the unfamiliar means taking a different route to the store or walking rather than driving to a nearby restaurant. The unfamiliar opens our mind and helps us become more innovative.

Be persuadable
Some points of view seem so contradictory to our own that we find them hard to justify on any level. But it’s possible to open ourselves to considering a different point of view. By putting ourselves in other people’s shoes and imagining their back stories and reasons for behaviors, we can see the world from new angles.

Prediction Machines: The Simple Economics of Artificial Intelligence

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By Ajay Agrawal, Joshua Gans and Avi Goldfarb (2018)

After reading such a book for a novice like me, I certainly gain a new perspective for the future. AI (Artificial Intelligence) is a prediction technology. Predictions are inputs to decision making. Economics provides a perfect framework for understanding the tradeoffs underlying any decisions.

When prediction is cheap, there will be more prediction and more complements to prediction. At low levels, a prediction machine can relieve humans of predictive tasks and so save costs. But at some point, a prediction machine may become so accurate and reliable that it changes how an organization does things.

Part 1 : Prediction

The impact of small improvements in prediction accuracy can be deceptive. For example, an improvement from 85% to 90% accuracy may seems more than twice as large as from 98% to 99.9%. However, the former improvement means that mistakes fall by one-third, whereas the latter means mistakes fall by a factor of 20. In some settings, mistakes falling by a factor of 20 is transformational.

Machine learning science had different goals from statistics. Statistics emphasized being correct on average, machine learning did not require that. Instead the goal was operational effectiveness. Predictions could have biases so long as they were better. This gave scientists a freedom to experiment and drove rapid improvements.

Recent advances in machine learning are often referred to as advances in artificial intelligence because :
1) Systems predicated on this technique learn and improve over time.
2) These systems produce significantly more accurate predictions than other approaches under certain conditions.
3) The enhanced prediction accuracy of these systems enable them to perform tasks such as translation and navigation, that were previously considered the exclusive domain of human intelligence.

Prediction machines utilize 3 types of data :
1) Training data for training the AI
2) Input data for predicting
3) Feedback data for improving the prediction accuracy.

Data collection is costly. It is an investment.

Statistical and economic reasons shape whether having more data generates more value. From a statistical perspective, data has diminishing returns. In terms of economics, the relationship is ambiguous. Adding more data to a large existing stock of data may be greater than adding it to a small stock- if that additional data allows the performance of the prediction machine to cross a threshold from unusable to usable. Organizations need to understand the relationship between adding data, enhancing prediction accuracy, and increasing value creation.

Prediction machines are better than humans at factoring in complex interactions among different indicators, especially in settings with rich data. Humans are often better than machines when understanding the data generation process confers a prediction advantage, especially in settings with thin data.

Part 2 : Decision Making

Human prediction will decline. However human skills associated with data collection, judgement and actions will become more valuable. A decade ago, London cab drivers’ knowledge was their competitive advantage. No one could provide the same degree of service. However, 5 years later, a simple mobile GPS or satellite navigation system gave drivers access to data and predictions that had once been the cabbies’ superpower.

Machines may learn to predict human judgement. But there are limits to the ability of machines to predict human judgement. The limits relate to lack of data. Machines are bad at prediction for rare events.

Airlines invented the airport lounge to provide passengers (or at least wealthy or frequent flying ones) a convenient and quiet space to wait for their flights. The lounge exists because you are likely to arrive early for your flights. Apps such as waze provide very accurate travel times from your current location to the airport. Such apps monitor both real time and historic traffic patterns to both forecast and update the quickest route. Better prediction, eliminates your need to have a place to wait at the airport. Airport lounges are an imperfect solutions to uncertainty and they both will be undermined by better prediction.

The introduction of AI to a task does not necessarily imply full automation of that task. Prediction is only one component. In many cases, humans are still required to apply judgement and take action.

Part 3 : Tools

Businesses need to study their work flow and identify tasks required to achieve their objective and only then consider whether computers had a role in those tasks. The actual implementation of AI is through the development of tools. The unit of AI tool design is the task. Tasks are collection of decisions and analyzed.

The AI canvas is an aid to help with the decomposition process. Tasks need to be decomposed in order to see where prediction machines can be inserted. Fill out the AI canvas for every decision or tool. This introduces discipline and structure into the process. It forces you to be clear about all 3 data types required : training, input and feedback. It also forces you to articulate precisely what you need to predict, the judgement required to assess the relative value of different actions and outcomes, the action possibilities and outcome possibilities.

Part 4 : Strategy

C-suite leadership must not fully delegate AI strategy to their IT department because powerful AI tools may go beyond enhancing the productivity of tasks performed in the service of executing against the organization’s strategy. Instead, it may lead to change the strategy itself.

AI will increase incentives to own data. Still, contracting out for data may be necessary when the predictions that the data provides are not strategically essential to your organization. In such cases, it may be best to purchase predictions directly rather than purchase data and then generate your own predictions.

AI can lead to disruption because incumbent firms often have weaker economic incentives than startups to adopt the technology. AI-enabled products are often inferior at first because it takes time to train a prediction machine to perform as well as a hard-coded device that follows human instructions rather than learning on its own.

Part 5 : Society

The rise of AI presents society with many choices. Each represents a tradeoff.

The first trade-off is productivity vs distribution. AI will unambiguously enhance productivity. The problem isn’t wealth creation; it’s wealth distribution. AI might exacerbate the income inequality problem. First, by taking over certain tasks, AIs might increase competition among humans for the remaining tasks, lowering wages and income. Second, AI tools may disproportionately enhance the productivity of highly skilled workers.

The second trade-off is innovation vs competition. AI has scale economics. Businesses has greater incentives to build prediction machines if they have more control, but along with scale economies, this may lead to monopolization. Faster innovation may benefit society from a short-term perspective but may not be optimal from a social or longer-term perspective.

The third trade-off is performance vs privacy. AI perform better with more data. In particular, they are better able to personalize their predictions if they access to more personal data. The provision of personal data will often come at the expense of reduced privacy.