9 ms·

Why business is so difficult and unpredictable

103 points by rjyoungling 7y ago

hackme1234 7y ago
Business is difficult and unpredictable just like most things in life.
Rainymood 7y ago
What is the connection with feynman? For me, I didn't read the article, I found the website to be unbearable. Also couldn't find an "about" section about the team behind this website. Feels like an ad for their "double your revenue, pay nothing up front" service.
- wffurr 7y ago
  I would guess "Feynman" is RJ Youngling's partner: https://www.linkedin.com/in/rj-youngling-1a4546171 https://www.linkedin.com/in/rj-youngling-1a4546171 No connection to the physicist. Not sure what about the site was "unbearable". It's just text. There weren't any banner ads or taboola chum. I guess I have low standards for what constitutes a decent site. The writing was a little growth hackery, one weird trick to supercharge your business, with a dusting of math theory. It was definitely an ad, but in the sense of "write compelling content and they will come to your site", as opposed to spray-and-pray low rent banner ads.
  - TheOtherHobbes 7y ago
    It's REALLY BIG TEXT saying very little of interest by making some hand-wavey references to math that is interesting but irrelevant. How many business domains end in a Nash equilibrium? How many end up with a monopoly or a small number of cartel players? How many businesses really only compete on price? How many try to inflate perceived value with branding and narrative management? What does "invent" mean in the context of a company like PayPal, which essentially just copied and repurposed one part of the banking system? "Business is hard" has nothing to do with the replication crisis. If your business is succeeding, you're reading the market correctly by definition. If it isn't, there may be other reasons besides not reading the market correctly. It's hard because the number of failure modes is bigger than the number of success paths. And the success paths are culturally disguised and non-obvious. (E.g. hard work, VC finance and advice, a good company culture, and so on are not a success path. Ferociously trying to monopolise a market while paying your employees as little as you can get away with and producing minimally competent products boosted by PR, ads, branding, and aggressive sales tactics is far more likely to lead to "success.") What is the point of this article? It's certainly not to offer actionable strategic intelligence.
  - tobr 7y ago
    They have illustrated the article with an image of a girl or a young woman who is at least partly naked. I can’t imagine how that image is relevant to the article, but I can imagine that they hoped it would make more people stay on the site for at least a few seconds.
deleted 7y ago
[deleted]
ThePhysicist 7y ago
That’s an interesting but pretty academic view of innovation I think. From my own observation there are only a few markets that really seem to reach a Nash equilibrium and drive prices to the minimum sustainable value. A great example is the mattresses business. You would think that there’s not much room for high margins there since it’s such a commodity technology. Good foam based mattresses for example can be mass-manufactured for around 30-50 $ according to industry sources. Shipping is also easy and cheap as they can be vacuum-packed and shipped as regular parcels. Yet, the top selling mattresses cost around 200-300 $. How can that be? I think there are multiple reasons for it but the gist is that price alone does not determine which product wins, psychological aspects play a central role as well. And while in the long run a Nash equilibrium can be reached in practice it’s often the case that the manufacturers in the market don’t compete too strongly on price since they understand the meta-game and know that they might ruin the market for everyone including themselves if they compete too strongly on price alone.
- hhs 7y ago
  > psychological aspects play a central role as well. Indeed, that’s why many companies make Veblen goods and generate revenue from this.
  - rjyoungling 7y ago
    Yeah, that's definitely true. Price elasticity is different for a commodity vs. a luxury item where you pay to signal.
- rjyoungling 7y ago
  Thanks for sharing your thoughts. I personally don't think there's that much room to move down in the mattress industry because lowering the price is usually the first thing marketers and SMB's try in order to grow market share (or when the business is struggling). I don't know much about that particular industry but I suspect it was already in a Nash Eq. It would explain why the 'new player' was Casper. Someone who didn't participate in the game but created a new game instead. I strongly agree with your comments about the psychological aspects (and general forms of psychological economic value creation). In the essay, I was referring more to businesses that are pretty much a commodity with very little distinction. It doesn't seem likely to me that the people in the market would be working together to artificially keep the price stable at a particular point. Such a system would be highly unstable since all it takes is 1 person to take advantage of it. If n is small enough, maybe but not if n is sufficiently big. This is essentially what a Nash equilibrium describes; you have a system and then 1 person's greed results in them taking advantage and forcing the other party to respond until you have a stable situation that might be less ideal for the market than what you started with.
hliyan 7y ago
I tend to believe that business isn't difficult, but modern business is difficult. If by business we mean "selling goods or services at a profit", then the type of cut-throat competition that exists today didn't exist historically (or did so at a much lower intensity). If you were a grocer, a butcher, a book binder, farmer or blacksmith from say, three hundred years ago, your business would have been established decades ago and would remain in a relatively steady state. If it made the same amount of money year on year (inflation adjusted), it would be considered a success. The current growth at all costs paradigm did not exist.
- streetcat1 7y ago
  I do not see cut-throat competition (I wish since that would lead to innovation). I see only monopolies.
  - tomrod 7y ago
    Monopolies are the entities that can afford R&D, dynamically, outside of government. Citizen science is cool, but doesn't extend outside of incremental value add domains. Fusion and more will almost certainly be from monopolies or monopolistic competitors.
    - defterGoose 7y ago
      No. Groundbreaking innovations like that have and will continue to come from basic research; the type that's really only done at universities.
      - giovannibonetti 7y ago
        So, say, the iPhone was not a groundbreaking innovation since it didn't come from an university?
        rjyoungling 7y ago
        I think the point they were making is that universities often create big breakthroughs and then companies put it together in a way such that it has commercial value. At least that's how I interpreted that comment. But Xerox PARC immediately came to mind, which was a breeding ground of innovation.
z3t4 7y ago
Biggest takeaway from this post: Don't be a parrot, think for yourself before you spread other peoples truth. Especially if they say what you want to believe.
- rjyoungling 7y ago
  I'm glad it has had a positive impact on you. Thank you for taking the time to read it.
bluetomcat 7y ago
People and nature are unpredictable and so is the world. Businesses don’t exist in a vacuum. What’s valuable to a specific person is tied to their current environment and their location in space and time. A business that satisfies such a need and is discoverable from such a demographic profits.
- rjyoungling 7y ago
  Yeah that's probably true provided they can get the unit economics to work, and there isn't anyone who does a better job of addressing their needs.
serjester 7y ago
I don't get the impression the author has much experience scaling. The problem with modern business is it's dynamic and chaotic so a comparison to academic studies isn't fair. Imagine trying to predict who's going to be relevant on YouTube in 5 years. In my eyes the problem is creators dynamically adjust their content based on their viewers and what other creators are doing. Then the recommendation algorithm introduces randomness. And finally any growth that does happen rapidly compounds. As a result it's a chaotic system and trying to predict it on any longer timeframe becomes impossible. Similar concept applies to modern tech businesses.
- rjyoungling 7y ago
  Thank you for your comment. I think we're fully in agreement here. Maybe I didn't do a good job but that was the point I tried to make. It's precisely because in business, degrees of freedom are high, and it's a dynamic and complex environment where butterfly effects play a significant role. This means that trying to outthink the market will likely fail and you just have to try different things and iterate based on the feedback the marketplace provides. I wrote this essay about that specifcally: https://www.younglingfeynman.com/essays/physicsenvy https://www.younglingfeynman.com/essays/physicsenvy
sebow 7y ago
Because humans are unpredictable?Where there are markets where everybody competes, why would anybody expect things to stay the same?
alexashka 7y ago
Business is difficult because it involves people, who make decisions based on feelings, which vary wildly and depend upon many many factors, including the weather. Every other field involving manipulation of people is difficult, because people. If you want answers, fund and study the brain.
- rjyoungling 7y ago
  I agree with this so much! In some weird sense, I feel like mathematics is way easier. I often half-jokingly say that but there's an element of truth in it. All your definitions are painfully clear. (How often do you see people disagreeing, only to, later on, find out they actually mostly agree but were operating under different definitions.) You control every single variable. If I want to create a 'lab' to constrain a variable, you just write down 'Let n be an element of Z' or something like that. Tada, now you're only working in Z. Try controlling variables in business haha. I'm glad to see behavioral economics and psychology are slowly starting to take off more in business. Thanks for reading btw.
cortesoft 7y ago
I feel like the Groupon example could have been solved with science, too; it doesn't require art. You just have to analyze the data for the long term, not just the short term. If your unsubscribe rate increases, but purchase rate increases more to compensate, that makes sense for the short term but not the long term. Long term, churn is going to cost more and more, since it persists, and you will eventually run out of new subscribers to add. Retention matters more in the long term, and that is not 'art', it is science.
- rjyoungling 7y ago
  That's a very fair critique. I have this discussion often with colleagues. But I can't help but feel like it's cheating a little bit. Because you can call anything rational (including irrationality) in hindsight, provided you simply expand what you deem to be rational post-facto. For example, increasing price to increase demand would seem irrational and receive a lot of push back in most companies. If you pull it off and it actually works, people can claim it was rational all along. (This has been my experience with mathematics vs. psychology too. In psychology, people always claim what you say is obvious even though it isn't. Probably because the problems can be stated in plain English. In math, it's the opposite. People find everything incredibly difficult, even though it's super obvious. Probably because mathematical symbols are a little intimidating at first.) But I get your point of view and I agree. Maybe some day we'll have enough data, or the right kind of models such that we can pretty much always know what the right thing to do is with absolute certainty.
rsp1984 7y ago
This problem is further exacerbated by the fact that we go through traditional education by default. A system that’s not designed to teach independent thinking but rather to reward obedience and implementing rules. Not only this, but it baffles my mind that most (high-) schools put (interesting but almost completely irrelevant) subjects such as literature, comparative studies, dead languages etc. above skillsets with massive real-life relevancy such as financial literacy, programming, psychology and leadership. The world's school system is completely and utterly broken but everyone's just too busy with their own BS to change it. It's heart-breaking.
- rjyoungling 7y ago
  I completely agree. I think you'd be hard-pressed to find people that disagree. The thing is, we can't agree on how we should do it instead. Some people argue that there are 2nd order effects one needs to take into account, e.g. abolishing grades; what would be the impact on the hiring market, where grades often are a proxy for discipline, work ethic, etc.? I think Sal Khan was on to something when he hypothesized that we should do homework at school, and the lectures at home. Essentially flipping the model. Most of these big problems haven't been solved in 1 fell swoop but by many people nibbling on the edges. I suspect this will be no different. In large part due to the inertia of culture.
  - AnimalMuppet 7y ago
    > I think Sal Khan was on to something when he hypothesized that we should do homework at school, and the lectures at home. Essentially flipping the model. I think that works better for at least some people. I'm pretty sure that it works worse for some people, too. What it does is change which group is more successful. That might be nice, in promote-equality kind of way, but it isn't necessarily progress. Actual progress would be figuring out which people do better in which kind of educational approach, and putting each person in the environment where they do best.
    - rjyoungling 7y ago
      Thank you for adding the clarification. That was actually what I meant but I should have been more precise in my communication. Anytime we try to force a sufficiently large group of people into one system, we're bound to create artificial distortions as a result of sanding down the rough parts, i.e. the outliers. Part of the solution will have to be the offering of multiple paths toward becoming a productive/successful citizen. There's a second problem here as well, the status quo problem. When a sufficiently high percentage goes through university (and all in the same age bracket as well.), you create a signal that if you don't go through traditional education, you're somehow defective. Thereby, removing the option of choosing a different path because of the stigma (e.g. starting university at 36 instead of 18).

103 points by rjyoungling 7y ago

Business is difficult and unpredictable just like most things in life.

What is the connection with feynman? For me, I didn't read the article, I found the website to be unbearable. Also couldn't find an "about" section about the team behind this website. Feels like an ad for their "double your revenue, pay nothing up front" service.

wffurr 7y ago
I would guess "Feynman" is RJ Youngling's partner: https://www.linkedin.com/in/rj-youngling-1a4546171 https://www.linkedin.com/in/rj-youngling-1a4546171 No connection to the physicist. Not sure what about the site was "unbearable". It's just text. There weren't any banner ads or taboola chum. I guess I have low standards for what constitutes a decent site. The writing was a little growth hackery, one weird trick to supercharge your business, with a dusting of math theory. It was definitely an ad, but in the sense of "write compelling content and they will come to your site", as opposed to spray-and-pray low rent banner ads.
- TheOtherHobbes 7y ago
  It's REALLY BIG TEXT saying very little of interest by making some hand-wavey references to math that is interesting but irrelevant. How many business domains end in a Nash equilibrium? How many end up with a monopoly or a small number of cartel players? How many businesses really only compete on price? How many try to inflate perceived value with branding and narrative management? What does "invent" mean in the context of a company like PayPal, which essentially just copied and repurposed one part of the banking system? "Business is hard" has nothing to do with the replication crisis. If your business is succeeding, you're reading the market correctly by definition. If it isn't, there may be other reasons besides not reading the market correctly. It's hard because the number of failure modes is bigger than the number of success paths. And the success paths are culturally disguised and non-obvious. (E.g. hard work, VC finance and advice, a good company culture, and so on are not a success path. Ferociously trying to monopolise a market while paying your employees as little as you can get away with and producing minimally competent products boosted by PR, ads, branding, and aggressive sales tactics is far more likely to lead to "success.") What is the point of this article? It's certainly not to offer actionable strategic intelligence.
- tobr 7y ago
  They have illustrated the article with an image of a girl or a young woman who is at least partly naked. I can’t imagine how that image is relevant to the article, but I can imagine that they hoped it would make more people stay on the site for at least a few seconds.

deleted 7y ago

[deleted]

ThePhysicist 7y ago

That’s an interesting but pretty academic view of innovation I think. From my own observation there are only a few markets that really seem to reach a Nash equilibrium and drive prices to the minimum sustainable value. A great example is the mattresses business. You would think that there’s not much room for high margins there since it’s such a commodity technology. Good foam based mattresses for example can be mass-manufactured for around 30-50 $ according to industry sources. Shipping is also easy and cheap as they can be vacuum-packed and shipped as regular parcels. Yet, the top selling mattresses cost around 200-300 $. How can that be? I think there are multiple reasons for it but the gist is that price alone does not determine which product wins, psychological aspects play a central role as well. And while in the long run a Nash equilibrium can be reached in practice it’s often the case that the manufacturers in the market don’t compete too strongly on price since they understand the meta-game and know that they might ruin the market for everyone including themselves if they compete too strongly on price alone.

hhs 7y ago
> psychological aspects play a central role as well. Indeed, that’s why many companies make Veblen goods and generate revenue from this.
- rjyoungling 7y ago
  Yeah, that's definitely true. Price elasticity is different for a commodity vs. a luxury item where you pay to signal.
rjyoungling 7y ago
Thanks for sharing your thoughts. I personally don't think there's that much room to move down in the mattress industry because lowering the price is usually the first thing marketers and SMB's try in order to grow market share (or when the business is struggling). I don't know much about that particular industry but I suspect it was already in a Nash Eq. It would explain why the 'new player' was Casper. Someone who didn't participate in the game but created a new game instead. I strongly agree with your comments about the psychological aspects (and general forms of psychological economic value creation). In the essay, I was referring more to businesses that are pretty much a commodity with very little distinction. It doesn't seem likely to me that the people in the market would be working together to artificially keep the price stable at a particular point. Such a system would be highly unstable since all it takes is 1 person to take advantage of it. If n is small enough, maybe but not if n is sufficiently big. This is essentially what a Nash equilibrium describes; you have a system and then 1 person's greed results in them taking advantage and forcing the other party to respond until you have a stable situation that might be less ideal for the market than what you started with.

hliyan 7y ago

I tend to believe that business isn't difficult, but modern business is difficult. If by business we mean "selling goods or services at a profit", then the type of cut-throat competition that exists today didn't exist historically (or did so at a much lower intensity). If you were a grocer, a butcher, a book binder, farmer or blacksmith from say, three hundred years ago, your business would have been established decades ago and would remain in a relatively steady state. If it made the same amount of money year on year (inflation adjusted), it would be considered a success. The current growth at all costs paradigm did not exist.

streetcat1 7y ago
I do not see cut-throat competition (I wish since that would lead to innovation). I see only monopolies.
- tomrod 7y ago
  Monopolies are the entities that can afford R&D, dynamically, outside of government. Citizen science is cool, but doesn't extend outside of incremental value add domains. Fusion and more will almost certainly be from monopolies or monopolistic competitors.
  - defterGoose 7y ago
    No. Groundbreaking innovations like that have and will continue to come from basic research; the type that's really only done at universities.
    - giovannibonetti 7y ago
      So, say, the iPhone was not a groundbreaking innovation since it didn't come from an university?
      - rjyoungling 7y ago
        I think the point they were making is that universities often create big breakthroughs and then companies put it together in a way such that it has commercial value. At least that's how I interpreted that comment. But Xerox PARC immediately came to mind, which was a breeding ground of innovation.

z3t4 7y ago

Biggest takeaway from this post: Don't be a parrot, think for yourself before you spread other peoples truth. Especially if they say what you want to believe.

rjyoungling 7y ago
I'm glad it has had a positive impact on you. Thank you for taking the time to read it.

bluetomcat 7y ago

People and nature are unpredictable and so is the world. Businesses don’t exist in a vacuum. What’s valuable to a specific person is tied to their current environment and their location in space and time. A business that satisfies such a need and is discoverable from such a demographic profits.

rjyoungling 7y ago
Yeah that's probably true provided they can get the unit economics to work, and there isn't anyone who does a better job of addressing their needs.

serjester 7y ago

I don't get the impression the author has much experience scaling. The problem with modern business is it's dynamic and chaotic so a comparison to academic studies isn't fair. Imagine trying to predict who's going to be relevant on YouTube in 5 years. In my eyes the problem is creators dynamically adjust their content based on their viewers and what other creators are doing. Then the recommendation algorithm introduces randomness. And finally any growth that does happen rapidly compounds. As a result it's a chaotic system and trying to predict it on any longer timeframe becomes impossible. Similar concept applies to modern tech businesses.

rjyoungling 7y ago
Thank you for your comment. I think we're fully in agreement here. Maybe I didn't do a good job but that was the point I tried to make. It's precisely because in business, degrees of freedom are high, and it's a dynamic and complex environment where butterfly effects play a significant role. This means that trying to outthink the market will likely fail and you just have to try different things and iterate based on the feedback the marketplace provides. I wrote this essay about that specifcally: https://www.younglingfeynman.com/essays/physicsenvy https://www.younglingfeynman.com/essays/physicsenvy

sebow 7y ago

Because humans are unpredictable?Where there are markets where everybody competes, why would anybody expect things to stay the same?

alexashka 7y ago

Business is difficult because it involves people, who make decisions based on feelings, which vary wildly and depend upon many many factors, including the weather. Every other field involving manipulation of people is difficult, because people. If you want answers, fund and study the brain.

rjyoungling 7y ago
I agree with this so much! In some weird sense, I feel like mathematics is way easier. I often half-jokingly say that but there's an element of truth in it. All your definitions are painfully clear. (How often do you see people disagreeing, only to, later on, find out they actually mostly agree but were operating under different definitions.) You control every single variable. If I want to create a 'lab' to constrain a variable, you just write down 'Let n be an element of Z' or something like that. Tada, now you're only working in Z. Try controlling variables in business haha. I'm glad to see behavioral economics and psychology are slowly starting to take off more in business. Thanks for reading btw.

cortesoft 7y ago

I feel like the Groupon example could have been solved with science, too; it doesn't require art. You just have to analyze the data for the long term, not just the short term. If your unsubscribe rate increases, but purchase rate increases more to compensate, that makes sense for the short term but not the long term. Long term, churn is going to cost more and more, since it persists, and you will eventually run out of new subscribers to add. Retention matters more in the long term, and that is not 'art', it is science.

rjyoungling 7y ago
That's a very fair critique. I have this discussion often with colleagues. But I can't help but feel like it's cheating a little bit. Because you can call anything rational (including irrationality) in hindsight, provided you simply expand what you deem to be rational post-facto. For example, increasing price to increase demand would seem irrational and receive a lot of push back in most companies. If you pull it off and it actually works, people can claim it was rational all along. (This has been my experience with mathematics vs. psychology too. In psychology, people always claim what you say is obvious even though it isn't. Probably because the problems can be stated in plain English. In math, it's the opposite. People find everything incredibly difficult, even though it's super obvious. Probably because mathematical symbols are a little intimidating at first.) But I get your point of view and I agree. Maybe some day we'll have enough data, or the right kind of models such that we can pretty much always know what the right thing to do is with absolute certainty.

rsp1984 7y ago

This problem is further exacerbated by the fact that we go through traditional education by default. A system that’s not designed to teach independent thinking but rather to reward obedience and implementing rules. Not only this, but it baffles my mind that most (high-) schools put (interesting but almost completely irrelevant) subjects such as literature, comparative studies, dead languages etc. above skillsets with massive real-life relevancy such as financial literacy, programming, psychology and leadership. The world's school system is completely and utterly broken but everyone's just too busy with their own BS to change it. It's heart-breaking.

rjyoungling 7y ago
I completely agree. I think you'd be hard-pressed to find people that disagree. The thing is, we can't agree on how we should do it instead. Some people argue that there are 2nd order effects one needs to take into account, e.g. abolishing grades; what would be the impact on the hiring market, where grades often are a proxy for discipline, work ethic, etc.? I think Sal Khan was on to something when he hypothesized that we should do homework at school, and the lectures at home. Essentially flipping the model. Most of these big problems haven't been solved in 1 fell swoop but by many people nibbling on the edges. I suspect this will be no different. In large part due to the inertia of culture.
- AnimalMuppet 7y ago
  > I think Sal Khan was on to something when he hypothesized that we should do homework at school, and the lectures at home. Essentially flipping the model. I think that works better for at least some people. I'm pretty sure that it works worse for some people, too. What it does is change which group is more successful. That might be nice, in promote-equality kind of way, but it isn't necessarily progress. Actual progress would be figuring out which people do better in which kind of educational approach, and putting each person in the environment where they do best.
  - rjyoungling 7y ago
    Thank you for adding the clarification. That was actually what I meant but I should have been more precise in my communication. Anytime we try to force a sufficiently large group of people into one system, we're bound to create artificial distortions as a result of sanding down the rough parts, i.e. the outliers. Part of the solution will have to be the offering of multiple paths toward becoming a productive/successful citizen. There's a second problem here as well, the status quo problem. When a sufficiently high percentage goes through university (and all in the same age bracket as well.), you create a signal that if you don't go through traditional education, you're somehow defective. Thereby, removing the option of choosing a different path because of the stigma (e.g. starting university at 36 instead of 18).