Category: Mental Models

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How much work can you really get done today?

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What kinds of things does work cover?

For many workers, it’s either a task or an appointment.

We handle tasks in to-do lists.

We add to these lists every day, either with a constantly growing one or on scraps of real or digital paper, scattered about.

Items on to-do lists are like weeds, they keep turning up and there is never enough time to get them all cleared away.

Appointments go on a calendar.

They are a commitment that we will meet with someone at a particular time, and they go into a slot.

More often than not, we are pretty good at keeping appointments.

Dan Charnas, in his book Work Clean – The Life-Changing Power of Mise-En-Place to Organize Your Life, Work and Mind, writes about how many people deal with the day.

Underplanners plunge in unprepared.

How the day goes is likely to be a surprise and what they do is determined by how others interrupt, order or interact with them.

Overplanners go to war with the day.

Their schedules are tight, with no space for disruption or the unexpected. They expect you to set an appointment for every discussion.

Both approaches don’t really leave us with a feeling that it’s been a good day at work.

Dan suggests that working clean with time means two things:

  1. Work out what you want to do
  2. Organise those in sequence

What you want to do – appointments or tasks can be collectively called actions.

He suggests starting with listing three actions that you want to do tomorrow. Put them on your calendar in the order you want to do them – fitting them in around any appointments you already have.

Then, do your actions.

If you did everything on your list, then move to setting out four actions.

Keep increasing the number of actions until you reach the point where you can’t always cross off every item on your list most of the time.

For example, if you can mostly do six things every day but never break seven, then your optimal number is six – what Dan calls your Meeze Point.

Less than that, and you’re probably not pushing yourself enough.

More than that, and you’ll probably just be overloaded and feel like you’re not achieving anything, even though you really are.

Your Meeze Point is the number of things you can really get done today.

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How to do technical analysis in energy markets

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Most of us shouldn’t be doing any technical analysis.

If you are an end-user – someone who actually needs a commodity and uses it in real life, then the maths of markets shouldn’t be the main thing you think about.

Instead, like in any other business, the closer your purchase price is to the cost of production, the better the deal you’re getting.

In a commodity market, like the electricity and gas markets in the UK and Europe, the best strategy is to first work out that number.

Then wait.

When the market price is close to your number – buy.

If you buy too early and the price goes doen – then buy some more and average down.

But – these opportunities only come along once in a while. In the last 15 years, there have been perhaps four occasions when the price was right and it made sense to fill your boots.

So… what do we do if we have missed those opportunities?

At that point, many people fall back on market timing – trying to get a better position by making a call on the whether the market will go up or down from where we are now.

And the tool we use is technical analysis.

The idea is that a combination of indicators can help us come to a view on where the market is headed.

The indicator to start with is the Moving Average. This is the average of a number of days and smooths out the daily variations in prices.

When a 9-day moving average crosses the 20-day moving average, it can be a signal that the market is going to change direction.

Between these, the smoother curves help us form an opinion on the trend.

In commodity markets, the Relative Strength Indicator or RSI is a popular measure.

The RSI is created by adding the number of days the market went up and dividing it by the number of days the market went down and turning it into an index from 0-100.

When the line crosses above 30, it’s a bullish signal and when it crosses below 70 it’s bearish.

Volumes traded in the market also provide an advance signal of changes.

If more people buy, it might push the price up, and as less people engage, the price might go down.

A change in volume levels can be an early sign that the market is changing its mind.

Bollinger Bands are a more complex technical indicator.

We work them out by calculating two standard deviations from a central line, usually the 20-day moving average. The theory is that prices should be within this range most of the time.

If they break out of the bands that could be a signal to buy or sell.

The challenge in energy markets is that as the number of options increases we have more of them to track and take positions on.

There are obviously many more indicators, some fiendishly complicated.

The point is that markets may be closely correlated – but that doesn’t mean just looking at one measure, like an annual contract, is enough these days to pick out a price that is undervalued.

In an ideal world, we would buy at cost-price and not need to do any technical analysis at all.

But – when we do, it’s useful to know how it’s done.

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How to make daily progress towards a goal

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Many projects need continued work and commitment over time without providing the kind of feeback that tells us that we are on the right track.

Managing a project, writing a book, doing sales calls, managing accounts, reading papers, writing code – all these require us to do something, day after day.

It’s easy to think that we aren’t making progress on the big goals just because all the small bits of work we do aren’t amounting to anything more than half finished drafts and work in progress.

Part of the the solution, according to James Clear, is to create visual cues that help you measure your progress.

He uses the example of Trent Dyrsmid, now a serial entrepreneur. In his first job, Trent had to make sales calls – and the method he used helped him launch his career.

He had two jars on his desk and filled one with 120 paperclips. Even day, he’d start making calls and after each one move a paperclip from one jar to the other.

He was done when he had moved all the paperclips.

He credits this with helping him develop a large book of business and his subsequent success.

It’s hard to visualize progress on a big goal or objective.

When we can break it into small, manageable chunks then we can make meaningful progress quickly on each small chunk.

If we can also make that progress visible, it also helps motivate us to keep going.

The idea of a visual cue, like a Kanban board, is that it takes things out of our heads and puts them in front of us.

The question to then ask is – what are the things we most want to do, and so what activity should each paperclip represent and how many do we need to know that we have made real progress that day?

And, because we have limited space, we should have the fewest number of visual cues necessary to monitor only the most important things we need to do.

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How can you become more profitable?

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What exactly does it mean to grow a company?

In the age of the internet, it seems that growth means eyeballs. You need to add users, quickly.

It doesn’t matter if those users are unprofitable. The idea is that if you add enough people, then a larger company will buy you just to be able to talk to your customer base and sell them more stuff.

Most businesses, however, don’t work like that.

They have three levers they can push – money, customers and operations.

According to Peter Lynch, the well-known manager of Fidelity Investments’ Magellan Fund until 1990, there are five things companies can do to increase earnings.

An investor would look at which of these options are open to any particular company before investing.

1. You can cut costs

Focusing on costs can be boring, but every penny you save has an immediate impact on profits.

Some costs, like electricity, gas and water, may be small – but their impact on profits can be considerable, especially in a competitive, low margin marketplace.

In an ideal world, you would compare costs against expectations daily, taking action to correct variations as soon as possible.

2. You can raise prices

If you raise prices, you will lose some customers.

That is no reason to keep prices low.

The calculation one needs to make is to work out at what price point a further increase will result in a net loss from customers leaving as a result.

This can be calculated – it requires a pricing model and charting, or if you’re feeling in the mood, differential calculus. Let me know if you’d like more information.

3. You can sell more to old markets

You may have more services that existing customers would take, if they were aware of what you did.

If you already have an existing working relationship with someone and have provided a good service you have an advantage over the competition.

4. You can expand into new markets

Now we’re looking at how you can get new customers.

The easiest place to start is to find customers like the ones you already have.

It’s much easier to have a conversation when you already have similar customers to the one you’re trying to work with.

And those conversations may tell you where the opportunities are for new products and services.

5. You can fix, close or sell a losing operation

If a part of the business is hurting profits, then you need to look at it carefully and work out what your options are.

It’s easy to fall into the sunk cost fallacy, where previous decisions and investments stop you from just stopping.

If you can’t fix it, then you need to close the operation or sell it – and that will have an immediate impact on your profits.

Lynch argues that how a company plans to deal with these five areas is its “story”.

As an investor, a company needs to to have a plausible and preferably compelling story about how it plans to increase profits before you put your money into it.

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How to manage a process using a Kanban board

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We’re all too busy all too often.

How can you get a handle on this – and get some control and visibility over what is going on?

One approach is to put a Kanban system in place.

Kanban is a way to see how value flows through your business.

At the end of any process, something should come out that has value to someone. Things – information, materials flow through the process and get changed into value.

Our job is to make it easier for things to flow from one stage to the next and we can do this using a Kanban board.

On the board, we set out the stages that we follow in our business. To keep things simple, let’s assume these are To-do, Doing and Done.

Under each title, we list out the things that fall into that category – usually on post-its, or perhaps in a spreadsheet.

The next part of the process is to introduce a constraint. The big number at the top limits the number of pieces of work that can be done in that stage at any time.

You can see in the picture above that there is conflict. The limit in Doing is 3 but there are six items.

Three need to be moved back into the To-do pile.

You can only move an item from To-do to Doing by moving something else from Doing to Done.

Applying the constraint and stopping your list from growing has an interesting effect.

To keep flow going, you have to get things done.

If there are things on your Doing list that don’t add value, or are acting as a bottleneck and taking up resources, you need to stop doing them or do them better.

In other words, do only things that matter to the end result.

A Kanban system is a deceptively simply way to improve a process.

It might look just like another way of creating lists.

But, when you combine the lists with a constraint on the number of items and a focus on flow, you end up creating more value at the end of the process than you were before.

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How to pitch your idea

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The author Dan Pink writes that we are all in the business of moving others now in his book To Sell is Human.

Whether it’s persuading others to back an idea or strategy to what people think of as traditional sales, all of us are increasingly required to pitch our ideas and get support in order to do anything.

The test for whether an idea was clear was the elevator pitch. Could you succinctly sum it up in 30 seconds or less as you went up an elevator with someone important.

But… we rarely share lifts with important people any more. What do you do when you don’t have an elevator available and you want to get their attention and spark interest?

Dan Pink describes six successors to the elevator pitch. It might help to remember them as you look at the symbols on your keyboard that match the ones in the picture.

1. ! The one word pitch

Can you describe your idea in one word?

Pink suggests starting with a short description, say 50 words. Cut it down to 25. Cut again to 10. One of those that is left is the one word that describes what you do.

For example, the website of Patek Philippe, the luxury watch brand, has the word Aesthetic scrolling on its homepage.

In an interesting twist, they have the one word that they feel describes the beauty of their product in several languages.

2. ? The question pitch

If you are sure of your facts and logic, then asking a question is a powerful way to get started.

WaterAid, a charity that helps bring clean water and toilets to people who lack basic sanitary provisons around the world, simply asks Are you ready? on their website.

Then they explain their goals and how you can get involved.

3. = The rhyme pitch

A rhyme sticks in your mind.

Pink says that if you are in competition with others, coming up with a rhyme that summarises what you do will help people remember your firm and potentially give you an advantage.

4. @ The tweet

Can you summarise what you do in less than 140 characters?

Apple is a company that mastered this approach with short, snappy lines under Steve Jobs.

“1,000 songs in your pocket” and “The world’s thinnest notebook” still probably bring to mind the iPod and the Mac Air.

5. _ The subject line

Email is still where most of us live, and where we get the most junk.

To stand out, your email must do at least one of two things, and preferably both, according to Pink.

It must have utility – a clear statement of whats in it for the reader.

It must spark curiosity – a desire to learn more.

6. ” “ The story pitch

The story pitch, also called the Pixar pitch, says that every Pixar pitch has the same formula:

  • Once upon a time…
  • Evey day…
  • One day …
  • Because of that, …
  • Because of that, …
  • Until finally, …

Pink’s site has a few videos that also explain these in more detail – and the book is a pretty good read as well.

The next time you’re stuck for a way to craft your pitch, just look down at your keyboard and remember the six new options you now have.

!?=@_” “

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The 5-stage thinking framework – TOLOPOSOGO

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How should we approach a problem, think of solutions and take action?

We have a number of biases that affect us when trying to solve problems.

We might jump to a conclusion too quickly, select facts that confirm what we believe is true or allow the power balance within a group to control the direction we take.

One way to structure how we think is to use a framework developed by de Bono, which uses the mnemonic TOLOPOSOGO.

It has 5 stages.

1. TO where are we going?

First, think about the end result.

What are we trying to solve. Where do we want to end up?

Having an idea of the outcome can help keep us focused.

2. LOok at the facts.

What data do we have? What are our assumptions?

This is where we set out the information we have and consider it – analyzing and evaluating what it says and means.

This is where we need to be careful not to select facts that support our views and discard others that don’t.

We need to stay open and fit all the facts into the ideas and theories we have.

3. Think through the POssibilities.

Once we have the facts, we need to think of the possibilities – come up with options and alternatives. This is a creative, idea-generating process.

It also needs to be a provocative process – challenging existing thinking and seeing how we can do things differently.

In the picture, the mnemonic makes a right angle turn to remind us that this is not simply a straight line process – we may twist away and go in a different direction at this point.

4. SO what?

Now that we have all these ideas – which ones matter? Which ones help us answer the So what? question?

Which ones are going to make a difference to the outcome?

We need to select the ideas and approaches that we think can be implemented and should be tried out.

5. GO – take action.

If we have gone through the effort of thinking through the problem in this way, we should have a good idea of how we can solve the problem and the approaches we can take.

Now it’s time for us to act – to start making and implementing plans.

Summary

This may seem an easy and obvious approach – but all too often the thinking mistakes we make are basic – and we do them because we are trying to think under pressure.

Using this framework can help slow us down and improve our chance of coming up with good solutions.

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How do we change from one product to another?

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One way to think of change is like a ladder.

We move from rung to rung, stepping off the old one and committing to a new one.

For example, we used to burn firewood for cooking, and still do in some places. Then we moved to transition fuels, such as coal or kerosene. Then we might use cleaner fuels, such as electricity or natural gas.

This kind of transition seems straightforward, one way (upwards) and natural. You move from one choice to another and eventually stop doing the things at the bottom.

Another way to think of change, however, is like a stack.

In this model, you stack different choices on top of each other, perhaps continuing to use them all at different times.

You may try out two approaches at the same time, like two boxes stacked side by side, before moving on to try something else.

Continuing with the energy example, you may have gas-fired heating, but also install a wood-burner – going back to using firewood for heating.

Neither model is quantitative – but they provide different ways of looking at a situation.

Take software, for example. Let’s say you have a system that is a significant innovation on what is already there.

If you think of change like a ladder, then you need to persuade your market that they have to switch from what they are doing to your product in order to benefit.

If you think of change like a stack, then what you need to do is persuade your market that what you have builds on what they already have to create more benefits than they enjoy right now.

There is some evidence that the stacking model is a more accurate depiction of how people actually make choices than the ladder model.

The main difference is that the ladder assumes that people need to make a choice between one thing and another. This OR That.

The stack assumes that people want to hold on to what they already have and choose things that build on existing investments. This AND That.

Focusing on what people want will probably be more effective than telling them what they need.

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What makes you special?

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In the last few months of the year teams around the country are looking at the year ahead, setting budgets and targets and trying to work out what do do and where they should focus their time and energy.

Should you focus on where you want to go – your goals and the end result?

Do you need to know where you are going so that you know when you are there?

Will having the right vision and mission statement and doing lots of motivating, team building activity help you succeed?

Is getting the right people on the bus the secret?

One way to see through the euphoric fog of motivational management is to consider what makes you special.

What is it that is distinctive about your business – the qualities and attributes that mean you will do better than others in your space?

John Kay, a leading economist, came up with the concept of distinctive capabilities in the 1990s.

He argued that distinctive capabilities are what you have, not what you would like to have, or hope you have.

You might start with a number of capabilities when analysing what is distinctive about you. Are you cheaper than the competition? Do you have smarter people? Is your reputation better?

Key said that there were only a few types of distinctive capability – and they stemmed from how innovative you were, how you structured yourself and what people thought about you.

He termed these innovation, architecture and reputation.

So, what do distinctive capabilities such as these have in common? How can you score them and see whether you should focus on them or not?

There are four questions to ask yourself. Is what you do:

  1. Hard to make and build? Does it take a long time or is it difficult to get the ability to build and maintain your capability?
  2. Hard to do? Is it possible to turn your activities into a recipe – something that can be recreated or adapted elsewhere?
  3. Hard to copy? Is what you do protected – either by laws or by its nature – a trade secret for example. Can it not be replicated easily.
  4. Hard to buy? Is it possible to buy what you do on the open market or is it something unique to you?

If what you do is impossible for others to make, do, copy or buy from anyone other than you then congratulations – you are on your way to a monopoly.

For most organisations, however, you will be somewhere on a range.

A strategy that works will focus on those capabilities that fall on the right hand side of the range when answering those four questions.

Whether you looking at yourself as an individual, a business unit or a business group, the chances are that you will get better returns by building on the distinctive capabilities you already have, rather than what you want.

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Why do you do something?

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People do things for reasons.

The reasons are the benefits you get – the things you have gained, are gaining or expect to gain from taking a particular action.

All these reasons and benefits, the associated hopes, dreams, goals, objective, prizes, are packaged by economists into one, rather dull word – utility.

Utility is what’s in it for you.

Understanding how utility is created is crucial when trying to make a decision, or when getting someone else to make a decision.

One way of doing this is by drawing a utility tree.

For example, around this time of year, many families are thinking about options. They want their kids to go to a good school – but what should they do?

Say they have to move – and they have two options. They can buy a place or rent a place. If they buy, they can buy a big house or a small house. If they rent, they can settle for an OK house.

Whether they buy or rent, as long as the house is in the right area, they are fine for schools – so the outcome is the same in all cases.

What makes the difference when choosing between the options for this family?

Lets say one partner wants a big house. The other, more familiar with their finances, doesn’t want the associated costs because they will stretch them too much.

A smaller house would make one partner happy, and the other could deal with it – but it’s not a preferred option by any means.

Both of them, however, really don’t want to rent again and deal with the issues of agents, commissions and having to have regular inspections.

These reasons are the utilities associated with the situation.

Now, if you keep all this in your head, it’s really hard to have a mature discussion that doesn’t end up in an argument.

Instead, drawing a utility tree helps to make the options, outcomes and utilities involved clearer.

The key thing is to consider each option you have by itself, using the same criteria to evaluate each option and making sure that you look at it from enough points of view to be happy you have thought through it properly.

For example, seeing the tree in the picture above clarifies the situation more than describing each person’s point of view in words.

The point of view someone takes, their perspective, is crucial in being able to understand what will and what won’t move them.

We can often only see things from our point of view.

Making good choices, however, whether in personal situations, when making investments or when persuading someone else to make one, often need you to see things from another person’s perspective.

What this also means, quite often, is that the best solution will need to be a compromise. For example, you might be able to persuade your partner to have a smaller house, as long as you can also have a nicer car.

Understanding utility simply means that you can better understand what people want and what they will do – and that means you are more likely to get what you want as well.