We have just two reasons that we may fail:
2. Ineptitude - knowledge exists, yet we fail to apply it correctly.
Much of the world is outside our understanding and control. There are substantial realms, however, in which control is within our reach.
Three different kinds of problems in the world:
... like baking a cake from a mix. There is a recipe. Sometimes a few basic techniques to learn. But once these are mastered, following the recipe brings a high likelihood of success.
... like sending a rocket to the moon. They can sometimes be broken down into a series of simple problems. But there is no straightforward recipe. Success frequently requires multiple people, often multiple teams, and specialized expertise. Unanticipated difficulties are frequent. Timing and coordination become serious concerns.
... like raising a child. Every child is unique. Although raising one child may provide experience, it does not guarantee success with the next child. Expertise is valuable but most certainly not sufficient. Outcomes for complex problems remain highly uncertain. It is possible to raise a child well. It’s complex, that’s all.
A line-by-line, day-by-day listing of every building task that needed to be accomplished, in what order, and when.
The whole checklist is sent to the subcontractors and other independent experts so they can double-check that everything is correct, that nothing has been missed.
What results is remarkable: a succession of day-by-day checks that guide how the building is constructed and ensure that the knowledge of hundreds, perhaps thousands, is put to use in the right place at the right time in the right way.
Submittal schedule specified communication tasks. Managers dealt with the unexpected and the uncertain by making sure the experts spoke to one another - on X date regarding Y process. The experts could make their individual judgments, but they had to do so as part of a team that took one another’s concerns into account, discussed unplanned developments, and agreed on the way forward. While no one could anticipate all the problems, they could foresee where and when they might occur. The checklist therefore detailed who had to talk to whom, by which date, and about what.
Trust in the power of communication. Don’t believe in the wisdom of the single individual, of even an expert. Believe in the wisdom of the group, the wisdom of making sure that multiple pairs of eyes were on a problem and then letting the watchers decide what to do.
When you’re confronted with complex, nonroutine problems, push the power of decision making out to the periphery and away from the center. Give people the room to adapt, based on their experience and expertise. All you ask is that they talk to one another and take responsibility.
They had made the reliable management of complexity a routine. That routine requires balancing a number of virtues: freedom and discipline, craft and protocol, specialized ability and group collaboration. And for checklists to help achieve that balance, they have to take two almost opposing forms. They supply a set of checks to ensure the stupid but critical stuff is not overlooked, and they supply another set of checks to ensure people talk and coordinate and accept responsibility while nonetheless being left the power to manage the nuances
RESTAURANT: A checklist for every customer. When an order was placed up front, it was printed out on a slip back in the kitchen. The ticket specified the dishes ordered, the table number, the seat number, any preferences required by the customer or noted in a database from previous visits - food allergies, for instance, or how the steak should be cooked, or whether this was a special occasion like a birthday or a visit from a VIP.
“That’s not my problem” is possibly the worst thing people can think. Silent disengagement, the consequence of specialized technicians sticking narrowly to their domains.
We need them to see their job not just as performing their isolated set of tasks well but also as helping the group get the best possible results.
People who don’t know one another’s names don’t work together nearly as well as those who do.
The checklist was too long. It was unclear. And past a certain point, it was starting to feel like a distraction.
The checklist cannot be lengthy.
A rule of thumb some use is to keep it to between five and nine items,
After about sixty to ninety seconds at a given pause point, the checklist often becomes a distraction from other things. People start “shortcutting.” Steps get missed.
So you want to keep the list short by focusing on what he called “the killer items” - the steps that are most dangerous to skip and sometimes overlooked nonetheless.
Ideally, it should fit on one page.
It is common to misconceive how checklists function in complex lines of work. They are not comprehensive how-to guides.
They are quick and simple tools aimed to buttress the skills of expert professionals.
Balance between brevity and effectiveness. Cut too much and you won’t have enough checks to improve care. Leave too much in and the list becomes too long to use. Furthermore, an item critical to one expert might not be critical to another.
... are vague and imprecise.
They are too long; they are hard to use; they are impractical.
They are made by desk jockeys with no awareness of the situations in which they are to be deployed.
They treat the people using the tools as dumb and try to spell out every single step.
They turn people’s brains off rather than turn them on.
... are precise.
They are efficient, to the point, and easy to use even in the most difficult situations.
They do not try to spell out everything - a checklist cannot fly a plane.
They provide reminders of only the most critical and important steps - the ones that even the highly skilled professionals using them could miss.
Good checklists are, above all, practical.
The power of checklists is limited.
They can help experts remember how to manage a complex process or configure a complex machine.
They can make priorities clearer and prompt people to function better as a team.
By themselves, however, checklists cannot make anyone follow them.
You must define a clear pause point at which the checklist is supposed to be used
You must decide whether you want a DO-CONFIRM checklist or a READ-DO checklist.
... team members perform their jobs from memory and experience, often separately. But then they stop.
They pause to run the checklist and confirm that everything that was supposed to be done was done.
people carry out the tasks as they check them off - it’s more like a recipe.
We adopted mainly a DO-CONFIRM rather than a READ-DO format, to give people greater flexibility in performing their tasks while nonetheless having them stop at key points to confirm that critical steps have not been overlooked.
Must nurses make written check marks? No, we decided, they didn’t have to. This wasn’t a record-keeping procedure. We were aiming for a team conversation to ensure that everyone had reviewed what was needed
We had a team in London try the draft checklist and give us suggestions, then a team in Hong Kong. With each successive round, the checklist got better.
Even the most expert among us can gain from searching out the patterns of mistakes and failures and putting a few checks in place.
Neuroscientists have found that the prospect of making money stimulates the same primitive reward circuits in the brain that cocaine does. And that, Pabrai said, is when serious investors like himself try to become systematic. They focus on dispassionate analysis, on avoiding both irrational exuberance and panic. They pore over the company’s financial reports, investigate its liabilities and risks, examine its management team’s track record, weigh its competitors, consider the future of the market it is in - trying to gauge both the magnitude of opportunity and the margin of safety.
He had repeatedly erred in determining how “leveraged” companies were - how much cash was really theirs, how much was borrowed, and how risky those debts were. The information was available; he just hadn’t looked for it carefully enough. In large part, he believes, the mistakes happened because he wasn’t able to damp down the cocaine brain.
No matter how objective he tried to be about a potentially exciting investment, he said, he found his brain working against him, latching onto evidence that confirmed his initial hunch and dismissing the signs of a downside. It’s what the brain does.
Pabrai added the following checkpoint to his list: when analyzing a company, stop and confirm that you’ve asked yourself whether the revenues might be overstated or understated due to boom or bust conditions.
Cook made a checklist. But he was even more methodical: he enumerated the errors known to occur at any point in the investment process - during the research phase, during decision making, during execution of the decision, and even in the period after making an investment when one should be monitoring for problems. He then designed detailed checklists to avoid the errors, complete with clearly identified pause points at which he and his investment team would run through the items. He has a Day Three Checklist, for example, which he and his team review at the end of the third day of considering an investment. By that point, the checklist says, they should confirm that they have gone over the prospect’s key financial statements for the previous ten years, including checking for specific items in each statement and possible patterns across the statements. “It’s easy to hide in a statement. It’s hard to hide between statements,” Cook said. One check, for example, requires the members of the team to verify that they’ve read the footnotes on the cash flow statements. Another has them confirm they’ve reviewed the statement of key management risks. A third asks them to make sure they’ve looked to see whether cash flow and costs match the reported revenue growth.
The checklist doesn’t tell him what to do, he explained. It is not a formula. But the checklist helps him be as smart as possible every step of the way, ensuring that he’s got the critical information he needs when he needs it, that he’s systematic about decision making, that he’s talked to everyone he should. With a good checklist in hand, he was convinced he and his partners could make decisions as well as human beings are able.
VENTURE CAPITALISTS STYLES OF THINKING:
assessed entrepreneurs almost at a glance, the way an art critic can assess the quality of a painting - intuitively and based on long experience.
took more time gathering information about their targets, soaking up whatever they could from interviews, on-site visits, references, and the like. Then they went with whatever their guts told them. As one such investor told Smart, he did “due diligence by mucking around.”
interrogated entrepreneurs aggressively, testing them with challenging questions about their knowledge and how they would handle random hypothetical situations.
focused more on wooing people than on evaluating them.
saw the whole effort as doomed to failure and skipped the evaluation part. They simply bought what they thought were the best ideas, fired entrepreneurs they found to be incompetent, and hired replacements.
took a methodical, checklist-driven approach to their task. Studying past mistakes and lessons from others in the field, they built formal checks into their process. They forced themselves to be disciplined and not to skip steps, even when they found someone they “knew” intuitively was a real prospect.
Smart next tracked the venture capitalists’ success over time. There was no question which style was most effective - and by now you should be able to guess which one. It was the Airline Captain.
The Airline Captains had a median 80 percent return on the investments studied, the others 35 percent or less.
Smart published his findings more than a decade ago. He has since gone on to explain them in a best-selling business book on hiring called Who.
The checklist gets the dumb stuff out of the way, the routines your brain shouldn’t have to occupy itself with, and lets it rise above to focus on the hard stuff.
All learned occupations have a definition of professionalism, a code of conduct. It is where they spell out their ideals and duties.
First is an expectation of selflessness: that we who accept responsibility for others - place the needs and concerns of those who depend on us above our own.
Second is an expectation of skill: that we will aim for excellence in our knowledge and expertise.
Third is an expectation of trustworthiness: that we will be responsible in our personal behavior toward our charges.
Aviators, however, add a fourth expectation, discipline: discipline in following prudent procedure and in functioning with others.
Discipline is hard - harder than trustworthiness and skill and perhaps even than selflessness. We are by nature flawed and inconstant creatures. We can’t even keep from snacking between meals. We are not built for discipline. We are built for novelty and excitement, not for careful attention to detail. Discipline is something we have to work at.
I went to the library and pulled out a few articles on how flight checklists are made.
The handbook was comprised not of one checklist but of scores of them. Each one was remarkably brief, usually just a few lines on a page in big, easy-to-read type. And each applied to a different situation. Taken together, they covered a vast range of flight scenarios. First came what pilots call their “normal” checklists - the routine lists they use for everyday aircraft operations. There were the checks they do before starting the engines, before pulling away from the gate, before taxiing to the runway, and so on. In all, these took up just three pages. The rest of the handbook consisted of the “non-normal” checklists covering every conceivable emergency situation a pilot might run into: smoke in the cockpit, different warning lights turning on, a dead radio, a copilot becoming disabled, and engine failure, to name just a few. They addressed situations most pilots never encounter in their entire careers. But the checklists were there should they need them.