There’s No Actual Skill Called “Business”

Avoid business schools and magazines

Naval:
In that sense, business to me is bottom of the barrel. There’s no actual skill called business, it’s too generic. It’s like a skill called “relating.” Like “relating to humans.” That’s not a skill, it’s too broad.

A lot of what goes on in business schools, and there is some very intelligent stuff taught in business schools – I don’t mean to detract from them completely – some of the things taught in business school are just anecdotes. They call them “case studies.”

But they’re just anecdotes, and they’re trying to help you pattern match by throwing lots of data points at you, but the reality is, you will never understand them fully until you’re actually in that position yourself.

Even then you will find that basic concepts from game theory, psychology, ethics, mathematics, computers, and logic will serve you much, much better.

I would focus on the foundations, I would focus with a science bent. I would develop a love for reading, including by reading so-called junk food that you’re not supposed to read. You don’t have to read the classics. That [reading] is the foundation for your self-education.

Doing is faster than watching

Nivi:
What did you mean when you said that “doing is faster than watching?”

Naval:
When it comes to your learning curve, if you want to optimize your learning curve… One of the reasons why I don’t love podcasts, even though I’m a generator of podcasts, is that I like to consume my information very quickly.

And I’m a good reader, or a fast reader and I can read very fast but I can only listen at a certain speed. I know people listen at 2x, 3x, but everyone sounds like a chipmunk and it’s hard to go back, it’s hard to highlight, it’s hard to pinpoint snippets and save them in your notebook, and so on.

Similarly, a lot of people think they can become really skilled at something by watching others do it, or even by reading about others doing it. And going back to the business school case study, that’s a classic example.

They study other people’s businesses, but in reality, you’re going to learn a lot more about running a business by operating your own lemonade stand or equivalent. Or even opening a little retail store down the street.

That is how you’re going to learn on the job because a lot of the subtleties don’t express themselves until you’re actually in the business.

For example, everyone’s into mental models these days. You go to Farnam Street, you go to Poor Charlie’s Almanack, and you can learn all the different mental models. But which ones matter more? Which ones do you apply more often? Which ones matter in which circumstances? That’s actually the hard part.

For example, my personal learning has been that the principal-agent problem drives so much in this world. It’s an incentives problem. I’ve learned that tit-for-tat iterated prisoner’s dilemma is the piece of game theory that is worth knowing the most. You can almost put down the game theory book after that.

By the way, the best way to learn game theory is to play lots of games. I never even read game theory books. I consider myself extremely good at game theory. I’ve never opened up a game theory book and found a result in there where I didn’t think, “Oh, yeah, that’s common sense to me.”

The reason is that I grew up playing all kinds of games and I ran into all kinds of corner cases with all kinds of friends, and so it’s just second nature to me. You can always learn better by doing it on the job.

The number of “doing” iterations drives the learning curve

But doing is a subtle thing. Doing encapsulates a lot. For example, let’s say, I want to learn how to run a business. Well, if I start a business where I go in every day and I’m doing the same thing, let’s say I’m running a retail store down the street where I’m stocking the shelves with food and liquor every single day, I’m not going to learn that much because I’m repeating things a lot.

So, I’m putting in thousands of hours, but they are thousands of hours doing the same thing. Whereas if I was putting in thousands of iterations, that would be different. So, the learning curve is across iterations [not repetitions].

So if I was trying new marketing experiments in the store all the time, I was constantly changing up the inventory, I was constantly changing up the branding and the messaging, I was constantly changing the sign, I was constantly changing the online channels that are used to drive foot traffic in, I was experimenting with being open at different hours, I had the ability to walk around and talk to other store owners and getting their books and figure out how they run their businesses.

It’s the number of iterations that drives the learning curve. So, the more iterations you can have, the more shots on goal you can have, the faster you’re going to learn. It’s not just about the hours put in.

If you’re willing to bleed a little every day, you may win big later

It’s actually a combination of the two, but I think just the way we’re built and the way that the world presents itself, the world offers us very easily the opportunity to do the same thing over and over and over again. But really, we’d be better served if we went off and found ways to do new things from scratch.

And doing something new the first time is painful, because you’re wandering into uncertain territory and high odds are that you will fail. So you just have to get very, very comfortable with frequent small failures.

Nassim Taleb talks about this also. He made his fortune, his wealth by being a trader who basically relied upon black swans. Nassim Taleb made money by losing little bits of money every day and then once in a blue moon he would make a lot of money when the unthinkable happened for other people.

Whereas most people want to make little bits of money every day and in exchange they’ll tolerate lots of blow-up risk, they’ll tolerate going completely bankrupt.

We’re not evolved to bleed a little bit every day. If you’re out in the natural environment, and you get a cut and you’re literally bleeding a little bit every day, you will eventually die. You’ll have to stop that cut.

We’re evolved for small victories all the time but that becomes very expensive. That’s where the crowd is. That’s where the herd is. So, if you’re willing to bleed a little bit every day but in exchange you’ll win big later, you will do better.

That is, by the way, entrepreneurship. Entrepreneurs bleed every day.

They’re not making money, they’re losing money, they’re constantly stressed out, all the responsibility is upon them, but when they win they win big. On average they’ll make more.