Executing in Non-Linear Environments

Rewiring your brain to think in terms of power laws.

School is a linear environment. The best you can do is get an A or an A+, not an A+++++++++++++++. Hence, school is mediocristan in Taleb-speak. On the other hand, the real world is a highly non-linear environment, dominated by power laws. The real world is extremistan because in the real world if you do well, you can do an order of magnitude well. The richest person is far richer than the poorest person, even to the order of millions times more richer.

An entirely different mode of operation is necessary in this type of environment, and most people coming out of school are not prepared for this. Those who either never adapted too much to the linear school environment, or are very good at unlearning what they learnt in school will do best in the real world.

The Non-Linear Ontology

Think of the world as a giant causal graph. Everything is interlinked, but few events matter disproportionately more than the other. Once you start thinking of the world in this manner, a lot of otherwise surprising phenomena starts making more sense. For example this type of organization of the world explains how it is possible for someone like Mark Zuckerberg to get rich overnight, or how technological progress can accelerate and produce disproportionate amounts of wealth.

This type of non-linear ontology applies both on the micro and macro levels. On the micro level, you could look at your startup or organization as filled with various people, but a few key players drive the organization. Under this light, CEO compensation becomes obvious. CEOs drive far more value than most people in the organization, and this value differential is not linear.

On the macro level, the political or economical world is also distributed according to a causal graph with disproportionately key events and entities. A few companies set the stage for innovation across the board, or a few people are able to change the trajectory of politics. Or when looking at what technologies will be transformative, it is highly likely that the technologies recently transformative will continue to be increasingly transformative in the future. Hence, since software has been driving so much of innovation recently, it is reasonable to find that the most straightforward path forward is to have software permeate everything else.

The non-linear ontology applies to all complex systems, which is essentially almost all of our world and universe. Almost everything we encounter follows a fat-tailed distribution, from the very atoms and molecules that shape our world, to the cellular microorganisms that enable life, to the stars and galaxies, and the dark matter that prevents the heavens from falling on our heads.

Personal Convexity

For to every one who has will more be given, and he will have abundance; but from him who has not, even what he has will be taken away. — Matthew 25:29, RSV.

To get really good at anything, you need to be able to focus, since real-world outputs follow a convex curve. Therefore, the better you get at anything, each marginal hour of input yields a larger amount of output than the previous hour of input. Hence this basically means that the worst thing you can do is not focus on anything and become a perpetual neophyte or dilettante. If you want to have disproportionate results, do not lose focus.

On a practical level this means that it is important to be wary of switching costs from project to project. In school, people are incentivized to have a “portfolio” of things, a large number of projects that don’t amount to anything. In the real world, do the opposite and become singularly focused to achieve non-linear results. If you’re not seeing each hour of your work yield exceeding amounts of value over time, then it might be worth reconsidering your focus. Conversely, if you are on a convex output curve, the worst thing you can do is jump off of it. Instead, ride the wave.

Convexity in Knowledge Work

Until the AGI arrives, the single most important factor for achieving convexity in knowledge work is intelligence. Intelligence is not IQ necessarily, at best IQ is a measure of dumbness and not smartness. Test performance can only provide a current snapshot of a person, but what really matters is the slope and not the intercept. Intelligence is best understood as a rate of learning. Therefore, when hiring look for high learning relative to the period of time spent on that learning, and in your personal life ensure that you’re able to maintain the ability to learn really fast.

Learning really fast, though, is necessary, but not sufficient. One could learn large numbers of trivial information that amounts to nothing. The best type of learning is focused on building more and more powerful models of the world, and is focused on going abstract. Instead of looking for large numbers of concrete details, look to spend your time searching for a few number of increasingly abstract models.

In analytical thinking or decision making, convexity means that there are a few elements that matter much more. Therefore, the worst thing to do is make a TODO list, which treats a large number of factors roughly equally. The job of any thinker is to identify the most important factors. There is a radical version of this known as Originary Thinking, where necessarily there is always a single factor that can be identified behind any decision.

Compounding Startups

The very best startups focus on relentlessly compounding. In software engineering, this means developing mechanisms for compounding your software systems in an accelerating manner. The design-iteration dialectic is important to master, so that your software teams are simultaneously moving fast, as well as designing well so as to ensure longer term compounding. Velocity of compounding is everything for a software organization, and now that software is eating the world, velocity of compounding will start meaning everything for all product organizations.

On the business side, compounding often means driving more and more integrations. Each additional integration into your platform increases the marginal value added for the next integration, because not only does your platform support more features, but also creates a network effect/lock-in which means that when potential integrators are trying to figure out whom to integrate with, over time your business becomes more and more attractive.

Indeed, the startups that tend to take over the world never stop compounding. Compounding has limits, but only once you reach the size of the planet. Until then, compounding can be relentless. Once the size of the planet has been reached, one can go to different markets, or new frontiers. The two richest people in the world as of January 1, 2021 literally do not even consider the skies to be off limits.

The Theology of Non-Linearity

One might even describe a kind of cult of the power law. The power law might just be a name for God. After all, “compound interest is the most powerful force in the world” is a quote apocryphally attributed to Einstein, where he is more or less developing a secular description of God.

In the Book of Genesis, there is a prophecy about the tech industry. The Fall of Humankind unlocks a non-linear rate of economic progress. People usually gloss over the large number of names in the Book of Genesis, but from the perspective of the Biblical authors, that was not merely a story. It was a complete account of human history, and therefore, what it really meant was the possibility of non-linearity in our world.

Remember, that time is money. He that can earn ten shillings a day by his labor, and goes abroad, or sits idle, one half of that day, though he spends but sixpence during his diversion or idleness, ought not to reckon that the only expense; he has really spent, or rather thrown away, five shillings besides. […] Remember, that money is the prolific, generating nature. Money can beget money, and its offspring can beget more, and so on. Five shillings turned is six, turned again is seven and threepence, and so on, till it becomes a hundred pounds. The more there is of it, the more it produces every turning, so that the profits rise quicker and quicker. He that kills a breeding-sow, destroys all her offspring to the thousandth generation. He that murders a crown, destroys all that it might have produced, even scores of pounds. — Benjamin Franklin

In the Protestant Ethic and the Spirit of Capitalism, Max Weber argues that it is this almost transcendental belief in the power of compounding or power laws that lead to the formation of capitalism. Today, Founders like Thiel, Altman, or Graham repeatedly remind us about the power law’s role in startups.

Indeed, if one wishes to live most in congruence with the shape of our world, one must seek to be exponential. History is defined by those who are convex, and the courageous few who ride power laws will leave an imprint on the cosmos that will echo throughout eternity.