A Hard Learned Lesson Ep 213

Abstract
Summary Notes

Abstract

In the latest Gym Secrets podcast, the host reflects on the valuable business lessons he's learned from reading and his own experiences. He discusses the importance of focus and the ability to say no to seemingly attractive opportunities that don't align with one's current level. Drawing from Jeff Bezos's insight on the outsized returns possible in business compared to baseball, he emphasizes the need to consider the practical costs of chasing high-reward bets, especially for entrepreneurs with limited resources. The host recommends "The Road Less Stupid" for its practical advice and shares three critical questions to evaluate opportunities: potential upside, downside, and the ability to live with the downside. He concludes by stressing the significance of discipline and making calculated bets, drawing inspiration from investment strategies of Warren Buffett and Charlie Munger.

Summary Notes

Business vs. Baseball Analogy

  • Business opportunities can yield disproportionately large rewards compared to baseball.
  • In baseball, the maximum score from a single swing is limited, but business can offer exponential returns.
  • Mathematical correctness of taking high payoff bets in business is acknowledged.
  • Practical considerations are implied to be necessary in addition to the mathematical approach.

"Business is different from baseball in that in baseball, when you swing for the fences, the most you can ever score is four runs. Right. But in business, every once in a while, when you step up to the plate, if you hit the ball hard enough, you can score a thousand runs."

This quote emphasizes the potential for massive success in business compared to the limited scoring in baseball, illustrating the idea of high-risk, high-reward opportunities in entrepreneurship.

Risk and Reward in Business Decisions

  • The speaker advocates for taking opportunities with high potential payoffs.
  • A one out of ten chance for a hundred times payoff is considered a worthwhile bet mathematically.
  • The speaker suggests that practicality requires an additional perspective to the pure mathematical approach.

"If you have a chance of a hundred times payoff and you've got a one out of ten chance of hitting it, you should take that bet every time."

The quote discusses the mathematical rationale behind pursuing opportunities with high rewards despite the risks, suggesting that the potential gains justify the decision.

Introduction to the Gym Secrets Podcast

  • The podcast focuses on customer acquisition, maximizing customer value, and retention.
  • The speaker shares lessons learned from failures and experiences.
  • The podcast aims to provide valuable insights to its audience.

"Welcome to the Gym Secrets podcast, where we talk about how to get more customers, how to make more per customer, and how to keep them longer, and the many failures and lessons that we have learned along the way."

This quote introduces the purpose and content of the Gym Secrets podcast, highlighting the speaker's intent to offer business advice based on personal experience.

Learning from Successful Individuals

  • The speaker has been reading works by financially successful individuals.
  • There's an intention to deliver more intellectually stimulating content in the podcast.
  • The speaker is at Bear Lake, sharing the serene setting with the audience.

"But recently I've been spending a lot of time reading and specifically reading from people who make a lot more money than I do."

This quote indicates the speaker's commitment to learning from those who are more successful in order to provide valuable content to the audience.

The Importance of Focus and Saying No

  • The speaker emphasizes the importance of focus and learning to decline opportunities.
  • As success grows, opportunities become more alluring, requiring discipline at higher levels.
  • The speaker references personal experiences of mistakenly saying yes to opportunities that were not aligned with their focus.

"And so I've referenced the opportunities that come to us as like the woman in the red dress, if you're familiar with the matrix, is that. The thing is that at every opportunity level, as you level up, the opportunities become sexier, right."

The quote relates the allure of new opportunities to a metaphor from "The Matrix," suggesting that as one's success grows, the ability to discern and decline certain opportunities becomes increasingly crucial.

'The Road Less Stupid' and Entrepreneurial Pitfalls

  • The book 'The Road Less Stupid' is recommended for entrepreneurs prone to excitement over new ideas.
  • The speaker acknowledges the appeal of innovation and change.
  • There's a balance to be found between the pursuit of new ideas and the focus on established goals.

"And so there's a book called the Road less stupid. It's really, really good. I'd highly recommend it, especially if you're an entrepreneur and especially if you're prone to getting excited about new ideas, constantly wanting to innovate, constantly wanting to tweak and change things, which is really, really the thing that excites us a lot."

This quote recommends a resource for entrepreneurs, highlighting the common tendency to get carried away by new ideas and the importance of strategic thinking to avoid common entrepreneurial mistakes.

High-Risk High-Reward Strategies in Business

  • High-risk bets can lead to significant payoffs, but they also come with the cost of experimentation.
  • The mathematical correctness of taking high-payoff chances must be balanced with practical considerations of limited resources.
  • Entrepreneurs often face constraints in capital, time, and team bandwidth, affecting their ability to take risks.
  • Jeff Bezos' approach to risk-taking may not be applicable to all entrepreneurs due to differences in available resources.

"People who bet big win big, but they bear the cost of experimentation, right?"

This quote emphasizes the concept that while large bets can lead to substantial wins, they inherently come with risks and potential costs.

"And so to give it a realistic context, imagine you're going to the casino, and that's the bet, right? That's the bet is you have to put, let's say, $10 down and you can win 1000, but you've got a one out of ten chance."

This analogy is used to illustrate the risk-reward scenario in a tangible way, comparing entrepreneurial risk-taking to making bets in a casino with the odds laid out.

Financial Constraints and Decision Making

  • Limited financial resources force entrepreneurs to consider the cost of making high-risk bets.
  • The ability to continuously make risky bets is not feasible for most due to financial constraints.
  • Jeff Bezos is cited as having access to virtually unlimited funds, unlike many entrepreneurs.

"Let's say you only go into the casino with $30. Then what do you do?"

This quote highlights the dilemma faced when one's resources are limited, which affects the ability to participate in high-risk opportunities.

"But a lot of us don't have that. And so in the book, the road less stupid, he gives a context that I think has really, really been useful for me even lately in making decisions about opportunities."

Here, the speaker acknowledges that not having access to large funds like Jeff Bezos is a common situation for entrepreneurs and introduces a book that offers valuable context for decision-making.

Strategic Decision-Making Framework

  • The book "The Road Less Stupid" provides a framework for making decisions about opportunities.
  • The three questions to ask are: What's my upside? What's my downside? And can I live with the downside?
  • This framework is helpful for making informed decisions and knowing when to say no to certain opportunities.

"And so the three questions are really simple, which is why I've been using them so much, which is, what's my upside, what's my downside? And can I live assuming that the downside is going to happen?"

The speaker shares three critical questions from the book that have been instrumental in their decision-making process, emphasizing the importance of evaluating both potential gains and losses.

Encouraging Listener Engagement

  • The host encourages return listeners to rate and review the podcast.
  • Rating and reviewing are presented as simple actions that can significantly support the podcast's growth.

"Hey, if you're a return listener and you have not rated or reviewed the show, I want you to know that you should feel absolutely terrible about yourself and everything else in the world. I'm kidding."

This quote is a humorous prompt to engage listeners, emphasizing the value of their support through ratings and reviews, and is followed by a retraction to clarify it's a joke.

Entrepreneurial Decision-Making

  • Entrepreneurs cannot wait for external help; they must take action themselves.
  • Making business decisions is likened to placing bets, similar to gambling, but in a controlled environment.
  • Business decisions require a balance of skill and luck, with skill being a more dominant factor.
  • The speaker applies a three-question framework to improve decision-making and has seen significant benefits in their business, even during challenging times like COVID-19.
  • Disciplined decision-making strengthens over time, enabling better judgment on what opportunities to decline.
  • The best investors, like Charlie Munger and Warren Buffett, make infrequent but large bets on 'no-brainers'—opportunities with a high chance of success.
  • The speaker suggests that a few well-placed bets can create the majority of an entrepreneur's success.
  • An anecdote is provided to illustrate a common scenario in business where a new idea is implemented quickly without full preparation, often leading to unchanged results.

because no one is coming to save us. It's just us.

This quote emphasizes the entrepreneurial mindset that one must be proactive and self-reliant in business.

And can I live with my downside of losing 50% for the hopes of gaining ten? No, I can't, because I'm going to assume I'm going to make that loss.

The speaker evaluates the risk-reward ratio and decides against taking actions where the potential loss is too high compared to the potential gain.

Business is the ultimate version of poker, right? Like poker is a combination of skill and luck. Right. Business, I would say, is even more skill and still a little bit of luck.

This analogy compares business to poker, highlighting the mix of skill and luck involved in both, with business requiring a higher degree of skill.

They talk about the best betters, the best gamblers actually bet the least frequently. They actually bet the fewest amount of times. But when they bet, they bet big.

This quote refers to the investment strategy of Munger and Buffett, suggesting that making fewer, larger bets on surefire opportunities leads to greater success.

if you look at them over 40 years, they only have 15 bets that have created all of the billions that they've been able to generate.

The speaker illustrates that a small number of successful bets can be responsible for the majority of long-term success in investing or business.

You get really excited about a new concept, a new idea that you think you're going to test out, right? And you pitch it to the team.

This anecdote serves to show a realistic scenario in business where enthusiasm for a new idea leads to hasty implementation without thorough training or preparation, often resulting in unchanged outcomes.

The Complexity of Assessing Business Changes

  • Multiple concurrent changes can obscure the impact of any single alteration.
  • Difficulty in identifying the cause of outcomes due to simultaneous changes.
  • The lack of a definitive answer from a test can lead to incurring costs without benefits.

"But there's, like, three other things that happened during that same period of time. So you're like, I don't know if it was this or it was because of the new process."

This quote highlights the challenge of determining the effectiveness of a change when multiple changes occur at the same time, making it difficult to pinpoint the reason for any observed results.

The Cost of Change and Risk Assessment

  • The importance of assuming the cost of downside when making business decisions.
  • Preparing for both known and unknown risks is crucial.
  • The third question in decision-making: "Can I live with the assumed downside?"

"And so in thinking through the bets that I'm making now, I'm assuming the cost and what I mean, I'm assuming that I'm going to have the downside, even the one that I'm understanding, but I'm assuming there's going to be some that are unknown that I'm going to have to incur."

This quote emphasizes the need for businesses to anticipate and accept potential losses, both known and unknown, when making decisions, ensuring they are prepared for any negative outcomes.

The Entrepreneurial Optimism Paradox

  • Entrepreneurial optimism can be a strength and a weakness.
  • Overestimating success and underestimating costs can lead to poor decision-making.
  • The need for strategic bet placement in business decisions.

"Our optimism can become our Achilles heel because we believe that the chance of success is actually greater than it really is."

This quote reflects on the double-edged nature of optimism in entrepreneurship, where it can lead to an unrealistic assessment of success probabilities and cause detrimental decisions.

Strategic Decision-Making and Focus

  • The value of saying no to unnecessary changes that distract the team.
  • The importance of consistent execution and improvement in fundamentals.
  • Long-term compounding improvement as a differentiator over time.

"And it continues to pay dividends because the team doesn't have to be scattered. They just have to think, how can we get 1% better every day rather than 1% better for two weeks and then change everything?"

This quote advocates for a disciplined approach to business improvement, focusing on steady, incremental progress rather than constant, disruptive changes that can impede long-term growth.

Learning from the Greats and Sharing Wisdom

  • Studying successful individuals can provide valuable insights into decision-making.
  • The speaker wishes to impart the lesson of measured decision-making to others.
  • Emphasis on the significance of learning from past experiences and others.

"I've been saying no to way more tests and tweaks and variations and just small things that would really distract the team and just saying, guys, we're going to keep focusing on executing, we're going to keep focusing on doing better at the fundamentals."

The speaker shares their personal experience of how they have benefited from focusing on core business practices rather than getting sidetracked by minor adjustments, suggesting this approach can lead to sustained success.

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