Introduction

Patrick: [00:00:49] My guest today is Vaughn Tan, who studies quality, innovation, and organizational behavior. His resume is bonkers. He's a PhD from Harvard, was an infantry signals logistician in the Republic of Singapore Army. Then worked at Google on advertising, Earth, Maps, Spaceflight, and Fusion Tables. He's also been a wood sculptor. But the topic of our conversation is how to foster quality and innovation in ourselves and inside of companies, lessons he learned in part by studying inside of some of the world's best restaurants. If you enjoy this conversation, I recommend you also check out his brand new book, The Uncertainty Mindset: Innovation Insights from the Frontiers of Food, which is linked in the show notes. Now, please enjoy my conversation with Vaughn Tan.

Definition of Quality

Vaughn: [00:01:33] Over time, I've begun to realize that everyone who makes something that I really like has some extremely unusual idea of what quality means for that thing. So whether it's a chef who's making what he or she thinks is really high-quality food or a farmer who's growing what he or she thinks is really high quality produce, or a furniture maker, I used to be a furniture maker, who's making what he or she thinks is really high-quality furniture. They always have some definition of quality, some set of criteria that I don't know about, but when I hear about it, I'm like, yes, that makes sense and that explains why you do what you do. And also, now makes me want to use that as a standard for quality.

I just want to ask people, you make this thing, whether it's a knife or a business or furniture or food, tell me what's important to you when you're making it. Tell me what's not important to you when you're making it. Tell me why and tell me how you got to this point. Because everyone always goes through these evolutions in how they think about quality. That's really what I'm trying to get to. How their idea of quality is different from everyone else's idea of quality and how that makes a difference in what they're doing.

Patrick: [00:02:36] What's one example of a person and their interesting definition of quality that you've talked to?

Vaughn: [00:02:41] My favorite wine bar in the world is a bar in Copenhagen called Ved Stranden. The guy who started it was... We ended up spending two and a half hours talking about it. His idea of quality in a wine bar or any kind of hospitality establishment is, these are his words actually, "It's a place where if you come, you are forced to, but also enjoy meeting people that you would not normally meet." So the moment you said that I completely understood why I love this place so much, because that's exactly what happens. You go there, you always meet someone that you weren't expecting to meet. They become people that you sometimes know for a long time. It's a really wonderful place. I think actually this is something, it sounds a bit like a tangent, but it's not a tangent in the strategy world as well. One of the default assumptions of strategy thinking is that everyone's pursuing the same outcome. That's how you can compare all these different strategies for achieving the same outcome and see what strategy gets you that outcome the most. And that's actually not true. Lots of companies choose to pursue different outcomes and that's what makes them innovative and successful. I think this idea that there is lots and lots of heterogeneity in terms of what thing you're pursuing, that's actually where interesting strategy begins. I think it will be the same. Nobody ever makes a really, really great product by wanting to make a product like everybody else does. They always make a really great thing by figuring out why all the other stuff that exists in the market is not quite right for them. And then they go and they fix this problem.

One of the default assumptions of strategy thinking is that everyone's pursuing the same outcome. That's how you can compare all these different strategies for achieving the same outcome and see what strategy gets you that outcome the most. And that's actually not true.

Patrick: [00:04:13] It's like in the investing context, you'll often hear Buffet or these famous investors say, spend a lot of time looking for the market that you're going to play in, not the plan of attack once you find that market. It's all about getting yourself in the right spot. And that's the same thing as the right quality outcome variable or something.

Vaughn: [00:04:32] Yeah, totally. The same idea, I think, will keep showing up in all sorts of areas where really great people do really great work. A lot of scientists will say that the big challenge is not answering the question. The big challenge is figuring out what question you're trying to answer in the first place. Not to say that answering it is easy or trivial, but it's not conceptually difficult. It's the part where you figure out a way to reframe the way the world works so that a new question shows up. That part's difficult, and that part's what actually is really interesting and produces really interesting outcomes when you try and solve that problem.

Patrick: [00:05:05] So Vaughn, I don't actually know where to begin here. This might be one of the more eclectic conversations if our lunch is any indication that I've had in 150 of these things. So maybe we'll begin with the idea that we ended with at lunch, which is your notion that most of the ways that we think about the world are totally wrong or at least many of them are. And we could use that frame as a way to discuss some of the verticals that we'll discuss, whether that be food or career or furniture making or all these interesting ideas. So layout the high-level architecture of this notion that you started to talk about and I stopped you.

Vaughn: [00:05:38] I'll qualify that. It's not to say that the way we think about the way the world works is totally wrong. It's that if we stopped to think about what we really wanted out of food or furniture or a business or a career, and we really did some introspection about what the goal was in each one of those situations, we might come to realize, as I've come to realize, it sounds like you've also come to realize, we might come to realize that the way we try and go about those things is wrong. So if you start with food, for example, which we talked about at lunch, if the idea is that you just want delicious food, then something which gives you instantaneous pleasure, that fits the criteria. So you go out and you eat at McDonald's, which is delicious. But if you really start to think about it a little bit, maybe you think one of my objectives with food is not only for it to be delicious, but we also want it to promote personal health. You want it to enhance your health rather than simply feeding you. You may want it to be produced in a way that is environmentally sustainable, that is ethical, or humane. The moment you start to have these things that are optimization principles inside it, you start to realize that the way we eat is slightly fucked. Well, I mean very, very fucked up. So restaurant culture is really big right now. If you decide that you want to eat food that is carefully sourced, that is meticulously prepared, very, very quickly you realize you can not go out to eat, you have to cook yourself. Then when you realize that you're cooking for yourself or for your family, then instantly this obsession with really complex, very detail oriented cooking, where it's just a lot of preparation, that gradually falls away. What you're trying to do instead is you're trying to source as well as you can, prepare it in ways that are as simple as possible. And over time, I think what happens is you also start to realize that your definition of what's delicious changes. If you're used to just going on eating all the time, maybe what you love is you love very highly seasoned things. You love things that are whizzbang, but the more you cook for yourself, the more you realize what you really want is you want cooking that is highly precise so that you cook it to exactly the right amount to reveal what it's supposed to show. You want to source from people that you trust, that grow food that doesn't make you feel ill after you've eaten it. Your priorities start to change a bit. So it's this ongoing process of figuring out what quality means for you in food or in all sorts of other kinds of things like your career or the business that you run.

I think the overall frame is, if we start to think about what our goals or our definition of quality is in any particular sphere of life happens to be, then you're forced to begin to rethink whether or not the actions that you take to achieve that goal make sense. As you start to change those actions, you start to realize that you know more about these different goals that you're trying to pursue so that they keep on evolving in a way that moves you further and further away from how the generic idea of what you're supposed to be pursuing has been presented to you.

Uncertainty & Discomfort

Patrick: [00:08:54] We're going to talk a lot about structuring innovation and uncertainty today. Talk a bit about what you were referencing in terms of how people think about their careers and how maybe the processing component that includes college, where you teach, creates maybe distortions or problems.

Vaughn: [00:09:10] I teach at UCL now. I teach an undergraduate program that teaches management science. I also teach in a PhD program that did just PhD students. So one of the things I've noticed over the last five years is nearly every student that I've taught wants to go into a job that I think superficially looks prestigious, it pays a lot. I think the best way to describe why they want to go into jobs like consultancy or investment banking is that it's cognitively very clear what goes on in that job. It's like, if you do that job, you get paid enough money. Your peers think you are successful. There's no uncertainty about what your career path will be apparently. So it's like it's very cognitively comfortable to do it. To a large extent, I think the way we structure undergraduate education, both explicitly and implicitly, pushes people in this direction.

Explicitly, it's because we teach people that school is about learning skills so that you learn a lot of skills and then use those skills in your job so that you can choose the skills that you want to learn based on what jobs need what skills. That kind of means ends causality. It's quite explicit in how we frame some of these programs that you have to go through to get a particular type of degree. But I think there's also a lot of implicit shaping going on. If you are an undergraduate at UCL, which is supposedly a good university, you have a career service that helps you find internships. And if you get an internship at a place, chances are you will just get a job at that place. The career service when they design career fairs, they only get people like a JP Morgan or a Bain or a BCG to come. So, simply by a process of implicit selection of what kinds of opportunities undergraduates get exposed to, they only get exposed to a certain category of things and it's like a self-perpetuating cycle. I don't think this is a very good thing for sure.

Patrick: [00:11:19] Can we talk a bit about this idea of uncertainty versus risk and a really great phrase that you've used, which is productive discomfort and what those two things mean and how they interrelate?

Vaughn: [00:11:31] The top level difference between risk and uncertainty is that in a sense, risk is not truly uncertainty. The best way to think about it that I've come to, it's not necessarily the right way. Just the best way that I can think of it is that we actually have to think about uncertainty in the context of certainty. When something is certain, you know almost exactly what is going to happen in the future. Then most of the time in the real world, we don't know exactly what's going to happen in the future, but this not knowing takes two forms. One form is the type of not knowing where you know all the possible outcomes. If you're throwing a die and you are trying to predict what the outcome will be, you don't know for sure whether it will show one or six or three or whatever, but you know that there is an equal chance that the die face that shows up will be one of those six die faces. That's a risk situation.

You don't know what the future will be like, but that's a risky situation where you know all the possible outcomes and you know the likelihood of each one of those outcomes. The hard part about uncertainty is that you also don't know what the future will be like, but in some cases, you don't even know what the possible outcomes will be. That actually reflects the situation that we most of the time find ourselves in today. We were talking over lunch about how, when you're faced with a situation where you don't know what the future will be like, and you don't know how it will get to that point, it's extremely uncomfortable. That's the kind of discomfort which I'm thinking about. Sometimes that discomfort is paralyzing, but sometimes it can really make you look in new places for new information. It can change your mind about things, especially things that aren't working. It can lead you to interact with people in ways that help you do something rather than prevent you from doing it. I think of that as discomfort that's productive. It does something for you and is a good thing, except we instinctively avoid all sorts of discomfort, regardless of whether it's good or bad.

Patrick: [00:13:34] I think one of the interesting ideas you mentioned at lunch as well is the notion of being able to train oneself, to engage in uncertainty and discomfort more. So what does that look like in practice? And you could use yourself as an example, or things you've observed in the interesting places you've looked. What is the equivalent of going to the gym for discomfort?

Vaughn: [00:13:57] I think the best example is probably one of the restaurant teams that I've studied, which I don't think I should name because we're not really sure if we get to name them yet. One of the things that they've done is about every nine months, they will commit themselves to a project, which is in some cases, quite a bit beyond what they know they can do at that time. The first example actually was when they decided they cook in this very specific way. I'm not sure how much you know about the way a restaurant kitchen works, but usually what happens is you design dishes so that they can be cooked by a particular configuration of different stations working together. In the pressure of a restaurant where you've got lots of orders coming in, it's really meant to be a highly optimized machine, especially at this very high level of fine dining where things really should never go wrong. You're really talking about making this machine that works perfectly. So you design the dishes that have to be produced to work very well with the people who are cooking them, the physical layout of the room, the way the restaurant is laid out. All of these things need to work together for it to be a seamless, flawless experience.

So if you decide after you've spent five or six years making this experience totally seamless to then tear out your entire kitchen and completely redesign it over the course of like three months, to me, this is an exercise in intentionally putting yourself as an organization into a situation where you literally don't know how you will reopen. You know that you'll reopen because you've got bookings and people may have made travel arrangements to come from a long way away to come eat with you. But you also know that until maybe two weeks before that opening date, the kitchen will actually physically not be ready. You'll have two weeks in that time to learn how to redesign some of the dishes that you use to cook in the old kitchen to work in the new one, and you may have to design some new dishes in the first place. That was the first stressful, but small example. The year after that, they decided to run a conference in the middle of a busy season for them, invite all of their most respected industry mentors and peers to come and not just make it a conference for chefs, but also they brought in a bunch of other people. Like a very interdisciplinary conference with people in public policy, people in biology, farming, they all brought them together. They'd never done anything like that before. So this really was like going from doing something which they knew how to do, which was run a restaurant, which they did very well, to saying, we're going to externally commit. We're going to tell everyone out there that we're going to run this thing. It'll be on this date. And people are going to buy tickets that are very expensive. Along the way, we're going to realize that we had no idea how to do that. We're going to figure it out along the way and get super stressed out about it.

They basically kept doing this year after year and they would spend maybe about nine months doing something and then take three months just to catch a breath. But also they would incorporate, what I saw, they did this for, so far I've seen them do it for like about 10 years. What they do is, they don't tear it down, what they do is they do this very stressful, highly uncertain project that makes them very uncomfortable. And along the way, what it forces them to do is learn a bunch of new stuff. They bring in new people into the team that they may not have had in the team before because they didn't need them, or people who are already in the team may have had to go out and learn how to do something new because they had to do that and they didn't know how to do it before. They may have had to completely restructure how the team works simply to do something new. So they don't tear it down. What they do is they take the product of the productive discomfort and then they reincorporate it into the next time. Over time, what you see is the project start very small, they get bigger and bigger and bigger and bigger until they get to the point where they can, at this point, they can do all sorts of what the outside observer would look like impossible things to do, but for them, it's just, it's still hard, but it's exactly like weight training. You don't start immediately going to a weight that you cannot lift. You start with something that you can lift and then you gradually go over and you build up. You tear out some muscle, then you build it up again and you have to rest a little bit, and then you do it again and again, and again, and over time you build up capacity.

I think, I don't know if it's true, I think it's possible to build capacity like this. I think as an organization, if you're trying to be an innovation organization, you actually have to do this. And possibly if you are a person, you have to do this as well. So you have to constantly be putting yourself in that position, which is extremely uncomfortable, as long as you designed that position so that it's helpful, and also you give yourself opportunities to learn from it. So those two things need to be true. You cannot just say, I'm going to make myself really uncomfortable, but not create a context where that discomfort helps you do something that you want. And also not give yourself the opportunity, the time to rest and learn from it. If you simply just keep overloading an organization or a person with discomfort, over time, they may be able to deal with it for a little bit, but tendons will snap. Sometimes people will just leave because it's too much stress. I think it needs to be a carefully programmed thing. We just don't really understand how to program these things yet because we don't really think about it like this.

I think as an organization, if you're trying to be an innovation organization, you actually have to do this. And possibly if you are a person, you have to do this as well. So you have to constantly be putting yourself in that position, which is extremely uncomfortable, as long as you designed that position so that it's helpful, and also you give yourself opportunities to learn from it.

Patrick: [00:19:07] Everyone's obsessed today with innovations. It's what everybody wants. Companies, which are fairly labeled innovative have tended to dominate stock market returns and things like this. There's this mythology and cult of innovation that everyone wants a piece of. What I think is interesting about your thinking is applying this notion of discomfort and this notion of training to innovation versus the eureka moment, romantic notion, of how things are discovered and building the principles of innovation into a single life or into some sort of organization. You've talked a little bit about a restaurant example. We'll come back to food throughout this conversation since that's been such an interesting focus of yours, but I want to start small and then build up. So talk a little bit more about what you think this means for the individual. And I know this is something that you're still actively thinking about and exploring, but using examples, whether yourself or others, talk about what you think this cultivation of discomfort might look like as a systematic structure that a person can employ.

Vaughn: [00:20:08] I think one of the things that is quite interesting potentially is simply thinking about how you choose what kinds of work you want to do. There is one school of thought about how to find a career or a job, which says, "Find a job where you are really, really well-qualified because that will make you easy to hire and go get that job." And to be fair, that probably is quite a good idea because if you are a very qualified for it already, then you'll get hired and life will be great. The other way of thinking about it might be to say, okay, I'm really good at this. I want to get good at that, which is a different thing, which you're not yet good at. Let me go find a job in this other thing I'm not yet good at and take a much lower position. Maybe take a pay cut, and be very profoundly uncomfortable for possibly quite a long time.

I used to be a marketer at Google. And one possibility after I left was to go become a furniture maker full time. Massive pay cut, totally different hours, social context, completely different. The nature of the work was fundamentally different, super uncomfortable, probably one of the best experiences I've ever had working three months doing that, enough time to realize not quite the right thing, but super useful. I think you don't have to be quite as extreme as that. Right now, one thing that people use MBA programs to do is to transition from one thing to another thing, as comfortably as they can. Use the two years of the MBA as a way to say, okay, I used to be X, now I can be Y as well. One way that you could implement the idea of productive discomfort in your own life is skip the MBA, maybe, and simply go take a slightly lower position in this other industry and spend those two years working up to where you would get to after you got your MBA and join directly. I don't know many people who talk a lot about doing that. It would be really interesting to hear from people who have done it that way, to compare their experiences with the people who went to business school and then went into what almost invariably is a quite carefully programmed management position that comes out of business school. That could be an interesting way to think about how you do it as an individual. But I think even if you're inside an organization already not looking for a new job, one of the things you can do is you can self-impose things that you want to do that you think makes sense for your organization on your role. Most people get hired into a job scope that's quite carefully programmed. That's what your job requisition looks like and you have to do it. I think one of the things that you can do, especially if you are already a quite high performing employee, you can simply say, okay, I already do all this stuff. Here's something else that I think the company needs that I can do. Let me try it. There are some organizational context which make it easier to do that. So all of this percentage time.

Patrick: [00:23:01] Yeah, the Google thing.

Vaughn: [00:23:02] Yeah, the Google thing, which if you ask anyone at Google, chances are they'll tell you that most people don't actually use that percentage time. So even if you are in an organization that says you've got 20% of your time, if you're in a particular part of the organization to try something, which you don't normally work on, most people don't use it. So if you already have that facility, definitely use it. And even if you don't have that facility, there's so much informal ability to negotiate around what your job is. Most people are not literally fully deployed in the work that they do. So if you're not fully deployed, turn some of the bits that are not fully deployed into time that you spend learning what else you could be doing that maybe is more fulfilling for who you are, but also can be demonstrated to benefit the organization that you're working for it. That's an intermediate step. You can do it while you're still full-time employed in a job and try and become uncomfortable with a bit of a safety net.

Takeaways from Google & Furniture Making

Patrick: [00:24:05] One of the things you said earlier was in this iterative restaurant concept that they're constantly boosting their knowledge or incorporating the past round into the next round. I'm curious to ask you the same question about the two experiences you've mentioned so far, which are a marketer at Google and a furniture maker. So looking back on those two times, what were the key takeaways that you feel you could then reincorporate in other things that you do?

Vaughn: [00:24:32] They basically drive everything that I do, both of them drive everything which I'm interested in doing now and for the foreseeable future. At Google, the thing which I realized was you've got this supposedly very creative organization. That's supposed to be run in an organizational way like creative organization should be run. Given lots of resources to innovate, carving off time so that people can do innovative stuff not worried about operational requirements. To be fair, this actually is true at Google. But the most interesting things I worked on at Google were things that bubbled up from below. Like you're in the Google cafeteria and someone says, "Hey, you're interested in working on genomics. You should meet Rebecca and you should meet Joel." And then all of a sudden, after a few months, you've got a small team of people that are all interested in doing something, which is super weird for what their real day jobs are. But collectively, we start a project. So this idea that you can have a bubbling up of a team that because it bubbles up, is properly structured to do innovative things. That basically became the entire subject of how I thought about my PhD research. It was from looking at all the things that were happening at Google unintentionally, that I started thinking about what was going on in these restaurants as something which was systematic, just not systematic in a way that conventional management research thinks makes sense.

Patrick: [00:25:53] More top-down.

Vaughn: [00:25:54] Top-down and also deterministic versus if it's bottom-up, it's sometimes it's also deterministic. But in this case, bottom-up means everyone who bubbles into this group, potentially brings in something new at different perspectives, some new knowledge. It's the fact that all of these different perspectives that you couldn't really have pre-programmed are talking to each other and having to negotiate with each other. That's what allows that group of people that you couldn't have anticipated the composition of, that's what allows that group of people to come up with interesting stuff. That's the Google thing. I don't regret that time at all. I probably wish I had the courage to leave earlier, but I don't regret it.

Then the furniture thing. That's the place where I met all these people who had completely different ideas of what quality was, but they were all supposedly making furniture. That was the first time I had not really consciously saw people who were making a chair. As they were talking through the process of designing this chair, what material they're going to use, how are they going to build it, what the design is going to look like, they all had completely different ideas of what a chair is supposed to be good for. There's this one guy who, to his credit, he's a great technician. So his chairs, I'm not going to say who he is, but I don't like the way his chairs look nor how they feel, but it would be hard to find someone to make a more technically challenging chair than that. And for that reason, they're quite cool. There's another person who doesn't care what the chair looks like, but cares a lot about the ergonomics of the chair. I love his chairs, but I don't like how they look. There's another person who cares a lot about construction. So those chairs are meticulously constructed, but they're very simple. I actually quite like them, but they're not comfortable. But the thing is, for each one of them, they all have a very clearly understood, even if they cannot necessarily clearly talk about it, idea of what quality means for them in this thing. That's part of what makes an organization's products super distinctive. If you think about why people buy Apple hardware, it's because Apple hardware historically has always felt Apple-y , even if it was brand new. So you can pick up literally off the production line, the very first new thing, like back when there was no iPhone, you pick up an iPhone and the design language and all the trade-offs that you're willing to make and not willing to make, the problems you're trying to solve, the problems you're not trying to solve in making an Apple product manifest in that Apple product. And it feels like an Apple product. That's what makes it distinctive. The reason why they can charge this massive premium on the hardware, it's not just because they make it really well, is because people want the Apple-y feeling. Most people don't care about the engineering tolerances on the iPhone or the Mac Book Pro even though they're extreme, they just want something which feels like something which they've had before, which is also new.

I think this idiosyncratic idea of quality that you can have, not everyone has it, that's part of what allows you to make new things that always feel like yours. A more familiar example might be, you go to a museum and you look at, I don't know, a Van Gogh painting. Every single one of them, even from early on, will feel the same. Even though they're brand new paintings. And every time they go paint a new painting, they'll feel like a Van Gogh because it's him. Even if it's a brand new painting about something he's never painted before. I think that's something which we, I know that in management research, we never think about this. And yet, if we are thinking about innovation and how people make new things, it's not just about how new they are in some industries, it also is important that they feel a part of what came before. It has to feel like something which is distinctively, what your organization would make. Those are the ones, you were talking about how innovation is now a really big thing in the equity markets. The innovative companies are the ones that are rewarded the most. In fact, actually, if you look at it, I think it's partly that they're innovative. In some consumer markets, it's a large part of it is going to be that they're innovative in a way that allows consumers previous experience with their products to help them choose to buy the next product. It's like movies from the Marvel Universe are like that. IPhones are like that, in a way that Samsung doesn't have hardware loyalty the way Apple does, and therefore cannot charge the same price premiums. You have to constantly keep making the technology better. Apple makes technology better, but people buy it because it's an Apple. Nobody goes out and says, I really want a new Samsung. It's something which I think is really important, which is very hard to think about. But we don't really think about it from a management training perspective, but people clearly know how to do it and do it really well. It's worth thinking about a little bit.

Patrick: [00:30:34] There's a really interesting straddling of the known and the unknown here, where you think innovation and you think mostly new and unknown, but in all the examples that you've given so far of successful innovation cultures or people, it seems to be that they're always paying homage to what's come before.

Vaughn: [00:30:54] Yeah, totally. I think it may not necessarily about thinking. We need to do it the way we used to do it. If you talk to those people, I think it's about, this is how we do it, and everything that we do has to feel like how we do it. So it's a very small difference from saying, let's do it the way we used to do it, because then you don't necessarily get to do really brand new things. Whereas if you think, okay, we need to do something totally different, but we need to do it the same way that we normally do it. So the Pixar is a great example. Every single successful Pixar movie always feels like a Pixar movie, but it can be about totally random things, like WALL-E had barely any dialogue and every single Pixar movie before that that was successful, that felt like a Pixar movie, was super dialogue-heavy. I think the ability to think this is how we are, and this is how it manifests in our products, lets you come up with really new things. Discontinuous innovation, if you want to call it that, while still preserving this idea that there is familiarity along the way as really hard. It's like, it's not just like a straddle. I think it's literally a tension between the two things that you cannot go all the way to innovation, just do it new. You cannot go all the way to familiarity, just do it old. You have to somehow do something, which is not just a balance between the two, it's simultaneously both things. That's really, really hard.

Patrick: [00:32:06] It's just a really neat framing of the notion of compounding. It's the same idea.

Vaughn: [00:32:11] That's really interesting actually. So you're thinking about this, maybe we can call it style or something. Like style is an asset that compounds for a company.

Patrick: [00:32:19] Correct.

Vaughn: [00:32:20] Yeah, absolutely. I would definitely say that. That is very cool.

Patrick: [00:32:23] Every example that you've given has some notion of that. I always think about this on blanking on the guy's name that was a genius advertising creative, and his term was, MAYA, which stands for most advanced yet acceptable. That idea really comes through in everything you've talked about. I want to drill down a little bit into the practical strategies for immersing oneself in this tension. When we were at lunch, you pulled apart a piece of bread and from looking at it, you were able to tell certain things about its background, which led us to an interesting problem that most chefs didn't even know existed. So maybe just replay that scene because I think drilling into the ingredients of anything before the processing is one way that you might actually back in your way into creative outcomes.

Vaughn: [00:33:19] To replay what was happening, part of it is not just looking at the bread. It's also thinking about the context. If I were at your friend's restaurant, Hu Kitchen, then I would look at this bread and I would think, oh, maybe they found a way to make it look like they were using...so let's just replay it a little bit. You open up the bread, you look at the bread and you think, okay, the crumb, even though it's a Focaccia, which is soaked in olive oil is surprisingly pale and it's got lots and lots of aeration, like huge bubbles inside it, which means that the gluten is really strong. To me, what this says in combination with where we were for lunch, it makes me think, okay, it's probably a very, very high gluten variety that's designed to have lots of gluten so that you can bake bread that's really aerated. And because it's probably commodity flour, it's probably milled in a commodity way, which is with a roller mill, very high-pressure steel rollers that crush the wheat into a powder basically. In the process, subjecting them to lots of heat that changes their structure in ways that we don't fully understand. So by looking at the bread, how it looks, its structure, its color, and also very importantly, where we are, you can guess, I'm not sure, pretty sure that it's a kind of wheat that I normally wouldn't want to eat.

Patrick: [00:34:34] Which is young, which is new.

Vaughn: [00:34:36] It's young in the history of the world. And it makes a bunch of trade-offs implicitly. I won't say most chefs, even though I think this is true, we'll give everyone the benefit of the doubt. Most people generally don't get a chance to be exposed to a context or information that makes them think really deeply about what things they put into their bodies. If you use, for example, deodorant, you are probably spraying a whole bunch of stuff on you that doesn't get rid of. So it's not truly a deodorant. What it is, is it's an order masker. In order to get it out of a spray can on to you, there's all these propellents, which used to be horrible chlorofluorocarbons. The things themselves, we are basically spraying volatile, organic compounds on yourself. Some of them are okay. Some of them, we don't really know about. But when you choose to do that, you don't really think about what you're putting on yourself. That actually applies completely to what we put into ourselves as well. Most people look at bread and if it's not in a plastic bag in a supermarket, if it's been made by someone, they're thinking, Oh, this must be carefully made bread. And in many cases, it actually is carefully made bread. But if you go one step beyond the person who is making it out of ingredients to look at what the ingredients are, it's often really, really very difficult to figure out what's in the ingredients themselves. You can say with complete honesty on the bag, this is wheat, but how was this wheat processed? Was it a stone mill or a roller mill? We don't know. How was the wheat grown? You don't have to say anything about how you grow it as long as you use permitted herbicides, fungicides, pesticides, permitted additives in the entire process. So, because we don't have to say anything about it, we don't generally know that stuff has a lot of shit in it.

I love drinking natural wine. I hate that phrase, but it basically means wine that has had as little put into it in the vineyard or in the cellar as possible. The interesting thing about most wine that is not intentionally made in a low intervention way is that if it was regulated, like we regulate the purity of bottled water, most wine would not be saleable. It's so filled with agricultural chemicals that you really don't want to drink it. People love wine. Nowadays, people think it's healthy. I actually think in moderation, almost anything is not necessarily bad for you. And wine is dry fruit, it's great. But you don't want to drink the other stuff, I think. You barely know that it's even there. You barely know that all this other stuff you don't want to drink is in the bottle, so that you're out having a great night or you're at home with family and you open a bottle of wine. If you haven't done a lot of thinking to figure out who you should be buying the wine from and who they bought the wine from and who they bought the wine from and how that person made the wine, chances are you'll get some crap. That's exactly what happens whenever you go into a restaurant. Even if they're taking a lot of care, because most of the time restaurants don't pay their staff enough, they don't have enough time and customers don't pay enough for the food for them to take the time to do all of this work because it's a ton of research that you have to do.

Patrick: [00:37:40] Can you describe, as an extreme example of this is to really hit the point home, the slug idea?

Vaughn: [00:37:46] Oh, yeah. I won't mention the brand because I actually can't remember what it was, but it was a box of strawberries that I got from a supermarket in Cambridge, Massachusetts about eight years ago. It was out of season strawberries from South America or something. And what we did is we soaked them for a while in water, which you should do with all soft berries, because if you don't buy them from a no-spray or organic farming system, chances are that there will be some residual pesticide on it. Because at the time when you want to eat the berry, is also coincidentally when it's most delicious to all the things that also want to eat it.

So you got to wash it. The best way to do it is to soak so that things dissolve. Most things are applied in water or oil soluble stuff. If you soak in water, you will get the water soluble pesticides and herbicides and fungicides, you won't necessarily get the oil soluble stuff. But we soak the berries, the strawberries in water for about an hour and then just pour the water on to some plants in the garden. And there were some slugs there, which we didn't really know about, but they died very, very fast. They just went, which is interesting. We are not slugs, so what's on the strawberry will not kill you, but do you really want to be eating maybe with every meal food that has some systemic poison for living things on it? Probably not. That's just what you put on the fruit before harvest and in the process of preparing it to be shipped around. Because when you ship fruit around, all the systems and the channels by which you transport it also have pests of their own. So you need to protect them from those pests.

But think about the entire growing season. When a plant is very small, when a strawberry plant is tiny, you need to protect it from, especially slugs because they eat the small leaves. That's not good. So you have to spray it once, unless you've got someone who's going through farming without chemicals and picking slugs off by hand or doing some other thing, which is more laborious, more time consuming, more expensive on their time that allows them to put less crap into the food. If they're not doing that, there will be crap in the food. So you've got to think about all of these different steps. The cost of cheap food is paid in the food itself and also in the people who work on it. The people who work in these industrial farms, they get exposed to agri chemicals all the time and they often have chronic health problems. As the end consumer in a regulated system, you're probably not going to experience that. But you are still eating every day if you choose not to buy food that's properly grown. You're still eating a tiny amount all the time. And over many days and many years, some of those things we think build up inside you. So we're not quite the slug, but we could be.

Lessons From Research

Patrick: [00:40:41] The reason I asked the question is maybe as trying to build some strategy for applying this innovation framework. Before we round out that idea, I realized that we're 40 minutes in and we haven't talked about the actual research project itself surrounding restaurants, what it was, why you engaged in it. You mentioned the original example of the one restaurant is one example of a cycle of innovation. But what were you trying to learn from observing all these interesting restaurants and R&D division within the restaurants? And looking back, this is probably something you're still doing, but looking back from this point to history, what do you think the most interesting lessons gleaned from your experiences have been?

Vaughn: [00:41:24] What the project is, was spending somewhere around five or six years with five restaurant R&D teams around the world to try and understand how it is that they design themselves so that they keep on being able to come up with new things. That's where I got to in the end. Why I started doing it was because I was doing a PhD. I was supposed to study innovation, and I like food. So I went, I did it. It's not a good reason, but this is an honest reason. Most of the time you just go study something which you, let's hope actually really are interested in. And then once you get there, you realize, holy shit, this is much more interesting than you could have expected without knowing anything about it. So you go there and then you realize why you're there, which is what happened to me.

I think what I've learned from it is actually something which I found very counterintuitive from a conventional perspective. I was trained as a conventional management academic or whatever. And most of that is about how one of the big, often very implicit, it's a subtext for a lot of management strategy, management best practice, is get rid of as much of the uncertainty as possible. De-risk, de-risk, de-risk or take risks very seriously. If you're an investor, you look for risk that you have asymmetry on. What these R&D teams were doing, more or less because they didn't have some MBAs to advise them to do it the other way, what they were doing was where they were systematically doing things to themselves that seem to make no sense because it would create uncertainty for them internally. And what was really counterintuitive and took a long time to get my head around was when they created uncertainty internally, it made them more able to deal with this rapidly changing environment that they were operating in.

I like to tell people these days, that if you're trying to look for a consumer industry that is changing super fast, you can always look at things like cell phones and consumer hardware. But the reality of it is hardware cycles are long cycles. Software cycles are short cycles, but the shortest cycle of all is something like food. You can develop a dish in a matter of a few days and implement it straight away. So if you want to look at an example of an industry where you can really understand the dynamics of innovation, because you see so many cycles and where the cost of failing is very low, they're almost a perfect industry. This is my retrospective justification for why I'm in it. But nonetheless, it's true. It's a true justification.

These R&D teams basically created hiring processes that forced new potential members to be in a situation for often a prolonged period of time where they would have no clear or confirmed idea of what their role was. So they'd be forced to spend all this time doing what I was suggesting before, trying to figure out what they could do that they were good at that their team that they were trying to join also wanted. Because that's the obvious way to become the new employee. You show up and they're like, "Okay, you got to do these things, but about half of your time, we don't really know what we need you to do. You figure it out." And at the end of six months, if you just say, "Oh, I don't know, I just ditzed around." Then they'll be like, "Yeah, see you later." But if instead what you did was you spent six months learning what pain points they had, what things that they wanted to do, but they couldn't do, and you realize that you could solve some of them, then you become someone that when you ask, "Mind if I join?" They're like, "Yeah, of course." It makes complete sense. So that uncertainty of coming into the organization as a potential member, not knowing what your role eventually would be, not only is that uncomfortable, it can be productively uncomfortable for both the team and for this potential new member. That productive discomfort forces that person to try and find new things to do that also work. That's very, very productive because it creates these teams that you could not have expected before. They turn into these teams that in some ways they feel almost like dream teams. You go there and people all know what everyone's good at because the process of learning whether or not you're good at something involves you actually proving that you're good at it, rather than simply going through an interview. There are a lot of very counterintuitive benefits to doing it this way, that you only see when you see people who are actually doing it that way, because nobody is there to tell them that's the wrong way to do it.

Patrick: [00:45:42] How is that imposed? You already talked about Google, the most famous company in the world, for having some literal structure, 20% of your time call it experimental time. In the restaurant context or in other organizations, how should people think about almost mandating the structure? Because it seems like people faced with uncertainty often run from it and try to double down on the certain things they know how to do. So how do you prevent that problem?

Vaughn: [00:46:10] So again, these are things which I would love for someone to try them out. I'd love to help them figure out how to try it out. I think that there are ways of doing this, that aren't as extreme as what these restaurants do. These restaurants have, they're lucky in the sense that there is an expectation in the industry that if you want to join one of these really high end, very cutting-edge restaurants, you normally go there and you spend some time there, partly so that you can figure out whether you want to work there. And also partly so that they can figure out whether they want you to work there. So you already have this idea that everyone thinks it's normal to go somewhere and try your best to fit in, in a way that is additive and good for everyone.

In a way, as a baseline, they already have that expectation. But if you were a more conventional company, one way you can do it is don't hire straight off the bat. Say, we'll pay you at a prorated full-time salary for some period of time. I would suggest a period of time that is longer than one project cycle for the kind of work that your organization does. And in that time, say something like, here are some things that we know are definitely going to have to be of your job scope. And here is an amount of your job scope that we just don't know about yet, but we want you to spend the next n months before we sit down and talk about whether we should mutually progress. We want you to spend the next n months really digging into this company and talking to people and figuring out what it is that we need, that we don't even know we need, that you uniquely can provide. Because I think a large part of why people don't do this is because there is an expectation that you want to hire as fast as possible. The way most hiring is done is a very intense, but very short filtering period, where you screen CVs and then you bring successful CV screen people in for an interview. And then you convert them to full-time, especially for the most important jobs, that's usually what you do. Most people who come into important, highly uncertain jobs like running the innovation team or being senior management, they don't come in on temporary arrangements. But I think maybe they should, because that's how you learn whether or not that person is not only correct for you in the ways that you expected, but also correct for you in ways that you didn't expect that are going to bring your company in interesting new directions.

And in that time, say something like, here are some things that we know are definitely going to have to be of your job scope. And here is an amount of your job scope that we just don't know about yet, but we want you to spend the next n months before we sit down and talk about whether we should mutually progress. We want you to spend the next n months really digging into this company and talking to people and figuring out what it is that we need, that we don't even know we need, that you uniquely can provide.

You could do that for senior people, but you could definitely also do that for junior people. Maybe this would be a way that you would find really interesting things that you didn't expect junior people to be able to do for you. If you already have something like an internship program where you bring people in for three months and pay them basically a full-time salary anyway, but you fully program what their job scope is, you're completely wasting this opportunity. So law firms, consulting companies, investment banks that do summer internships that don't do part of that interns role, being unknown and explicitly for the intern to go out and find something to do, they're missing an opportunity, I think. I don't think it would even need to be super profound. 50% of your role is unknown or provisional. It could be like 10% of your role. Take like an afternoon every week, that's what it would be, an afternoon every week is 10% of your role. Go out and talk to people about what things we're trying to do that we can't do yet and figure out whether you can do them. That could be fun.

Patrick: [00:49:27] It sounds fun for everybody.

Vaughn: [00:49:29] It sounds fun for everyone. I think the one caveat is obviously, this can be disruptive, but not if you set expectations up and down. So you can tell the very junior person who is the intern, that this is what they are expected to do. But you also have to make sure that everyone along the line understands that don't let this person claim an entire week of your life if you are the employee who's being approached by this intern, but definitely, you must give them some amount of time and use your judgment. So a little bit of discretion, I think, on both ends of the equation is essential, but there are definitely things you can do to retrofit an existing way of getting people into an organization or hiring people so that you can learn what they can do and give them a setting in which they can figure out what you need that they can provide.

Patrick: [00:50:15] A small anecdote from my own experience, which corroborates two of your ideas at once. One being, give them this time. But also the second being, don't have it be complete unknown and uncertainty, tethered to the known in some ways. So we've got this thing we call the research partners program, which we're a quantitative investment firm. We effectively give our pride and joy, our core dataset to carefully selected, but very eclectic global researchers. Originally, the idea was to give them just an open sandbox and have it be like an internship where 100% of the time is unstructured. It's like, do whatever you want and talk to us, however often you want to. What we found very quickly was that the best results came when there was a very clean mix of completely open search time with very normal interactive, project-based time working with our actual full-time team. And that happened very organically. We just didn't know what to expect. It has coalesced around most of the productivity coming from some mix of those two things. So it really does, I think, work that way. It's just very hard to set up structures where people are expensive. So some portion of your cost is being allocated to total uncertainty. It's very hard for managers to bite off, I think.

Vaughn: [00:51:29] Yeah, absolutely.

Patrick: [00:51:31] It's a long-term payoff thing.

Vaughn: [00:51:32] It's a long-term payoff. But I think also, another way to think about it is if you hire someone who's wrong, it's also much harder to directly quantify the cost of that person to your organization for being the wrong fit. Especially someone senior who is wrong can be absolutely disastrous. Another way of thinking about it that maybe makes it more palatable is not, let's spend all this time because it's a sunk cost that you need to have. It's a way of avoiding an even larger cost from bringing someone into a position and setting the expectation, both from incumbents, as well as this new person, that they will be full-time permanent when it will take them about the same amount of time that you would have them temporary to figure out that the other really the wrong person. And then there are all sorts of social pressures that prevent someone from leaving after six months. They end up staying for a year, a year and a half, by which time they're bedded in. Then there are all sorts of problems with that. This is the false positive and the false negative of hiring. Both of them are really expensive. You don't want to have a false negative and not hire someone you should have hired. At the same time, if you accidentally hire someone that you really shouldn't have hired, both of them are super expensive. And the trial period gets rid of both of them. It doesn't get rid of them, but it significantly reduces the false positive problem, and it gives you the ability to take a flyer on someone who might be, if you were hiring straight off the bat, might be a instant no.

But if you only have to get them for three months and you pay them a prorated annual salary for three months, and then they turn out to be amazing rock stars for completely unexpected reasons, because the environment changed or they found something that they needed to do in the company, that's a false negative, completely averted, which is also a major asset. I think the one thing which I also might say at the risk of being in politics is it will be very hard to do this with a conventional HR organization. So their incentives are tied towards getting people onboard and staying around for a full year usually. Their incentives in recruitment and hiring, I think, are in many cases, not exactly diametrically opposed to what the organization should want and what the person being hired should want, but they're pretty close.

Patrick: [00:53:44] Everything you've said makes incredible sense from the standpoint of someone running an organization. What about from the standpoint of the prospective employee? I think it's clear why there are some positives, like talented people would want to know early if a place wasn't right for them, so they might be open to this. But I think it's so unconventional that the most high-performing people, there might be an adverse selection problem. The most high-performing people would feel like they deserve certainty and therefore would be unwilling to subject themselves to this sort of trial period. So how do you think that problem might be solved?

Vaughn: [00:54:15] I'm not sure you could solve the problem, but maybe you could reframe it so that the adverse selection appears good. I'll preface that by saying that this way of doing this provisional negotiated joining, that's what I've called it. It's a horrible name. But negotiated joining where the joining process involves this period of provisionality where you negotiate what your role is. Negotiated joining doesn't make any sense if you know what the role is supposed to be already. If the job is highly certain, you know exactly what needs to be done, you know what outcomes need to be, what levels those outcomes need to be, just hire for that. Negotiated joining really only makes sense when the job itself is uncertain in terms of what you have to do to achieve a known outcome, or when both of those things are uncertain. You don't know what you need to do, and you don't know what you need to achieve, then you need something like this.

In that situation, do you really want someone who's a high performer, who wants certainty? You don't. What you want is you want that adverse selection, you want people who say, okay, this is a challenge I'm up for. Because the way you join is actually in a sense, it's like a microcosmic version of the problem that you are going to solve if you join. So in a way, although this is cheating, I don't think you asked the right question. Yeah, because if you're using this very, very expensive and time-consuming way of hiring people for really well understood jobs, that also is like, why are you doing that? It's a really stupid decision.

Patrick: [00:55:37] Maybe I'll think about this as like the rent to buy in the job market or something as a way of labeling it in my mind. It's almost universally good, positive as someone that hires people. So I just need to think more about how to make it really appealing to the perspective, how to market it basically, how to tell the story.

Vaughn: [00:55:55] I think, and I don't know how this will play, but my suspicion is the best thing to be as completely transparent about. So not trying to, yeah, not trying to sugar coat it. It's not going to be thing where you come into this job, and if you do the following 10 things well to this definition of well, then you get hired. It's really clearly, you come to this job and there are these few things that we need you to do well. And this is how we'll know whether you're doing them well, but the rest of it, you need to convince us. So it's not even like we have a preexisting set of definitions of what good performances for this unknown zone, it's that you need to both do the thing well, and then convince us that that means it's being done well.

I think that's a challenge that will appeal to a particular kind of person who also tends to be entrepreneurial, tends to be willing to go into unknown situations, probably is also willing to take the initiative and take responsibility for things when they go wrong. To me, these are all things that for a certain kind of job in a certain kind of environment, these are all very, very good things that conventional hiring processes, in fact, select against. I'm not sure you need to market it. I think what you need to do is you need to communicate it very aggressively as opposed to trying to find the-

Patrick: [00:57:10] Trojan horse your way into it. Yeah.

Vaughn: [00:57:12] Definitely not Trojan horse.

Patrick: [00:57:13] Is there a person that stands out in memory, an individual anecdote that you saw happen, of someone that came in with some amount of uncertainty time that then produced something really interesting?

Vaughn: [00:57:24] There was a guy who I also cannot name, but he was a program manager at a very large software company. He worked at one of these labs that was in the same city as this very large software company. He initially joined them as a friend, he was super interested in what they were doing, because they were blogging about their work a lot. So this R&D team is quite unusual in the sense that it doesn't prepare dishes for a restaurant. What it does is it does basic research on the science of cooking and it publishes books, multi volume books that explain to people what is actually going on when you fry an egg, so that you can fry an egg in a different way to achieve a different outcome. So they used to write a lot of blog posts about stuff, and they had a local community of people who are super interested in what they were doing. And this guy was one of them.

He started like hanging out with them a little bit more and then eventually joined to do a job. But it wasn't clear what the job was. The idea was he would join and try and create a new business model for them. But it was not clear to them at all, what the business model would be. He had project management responsibilities because each one of their projects was a real project. You have to manage, I think something like six developers of recipes and testers of things with photographer, graphic designer, production person, editor, copy editor, so you have to manage all those things. So he had that part of the job as a clearly laid out set of roles. Then the other part was, okay, once we're done with this book, what's our next business? And that was very uncertain and he's still there. Now what he does is he does a lot of weird stuff. He builds equipment to photograph things that are not normally photographable. He's helped them set up two independent businesses that are derivatives based on IP that was generated from original projects that they got famous from. I've asked him before and he says it's great. I would think this is much more fun as a job than one that you look at the job before you join. It says these following 20 things, you do them, you join and you do those 20 things for the rest of your life. To me, that sounds like, it sounds like hell. The alternative is you join. And this job, not only do we not know what most of it is, you get to decide. That's awesome to me. Terrifying, but awesome. Also, along the way, the nice thing about this is his job keeps on changing. Like they launched this business, no longer needs him to run it, does something else. So in a way, it's not like you're consigning yourself to 25 or 30 years in a company doing the same thing and gradually moving further and further up the ladder and making the same decisions about bigger and bigger things. You actually get to change your life along the way. And in a way, I guess it's terrifying for people who want their life to always be the same. But for a different kind of person, I think it can be a very liberating idea that this can be a life. This can be a career.

Playful Personalities

Patrick: [01:00:01] I was at a dinner recently where we talked about the idea of adults who are playful, and this idea of playfulness is a funny word. It's like a silly word almost, but it hits that personality type that I think might be good at this uncertainty. When I say that adults who are playful, who jumps to mind for you?

Vaughn: [01:00:20] Oh, our friend, Jerry Neumann, is one for sure. And he's been on the show before. Someone else that you might really like to talk to, you may have already talked to him. There's a guy called Venkatesh Rao.

Patrick: [01:00:30] Yeah, I know him. I don't know him well, but I know of him.

Vaughn: [01:00:32] He's someone that I really like how he plays with ideas. I don't know him very well either, but when he comes to London or when I'm in Seattle, we tend to hang out and we talk for a really long time. I think part of playfulness is being willing to be wrong and not just in a, Oh I'm willing to be wrong, but very profoundly, you've got some assumptions that underlie how you build your system of how you think the world works. Most people are willing to be wrong at the top, where imagine you've got like a piece of land, you build foundations, you build level one, level two, level three, and there's this house. Most people are willing to have assumptions changed at the level of changing the color of the paint or putting new tiles on the roof. The people who are truly playful are the ones who are willing to totally reconstruct the house from the foundations up or possibly excavate. And that's really neat.

Most people are willing to be wrong at the top, where imagine you've got like a piece of land, you build foundations, you build level one, level two, level three, and there's this house. Most people are willing to have assumptions changed at the level of changing the color of the paint or putting new tiles on the roof. The people who are truly playful are the ones who are willing to totally reconstruct the house from the foundations up or possibly excavate. And that's really neat.

Patrick: [01:01:19] One of the things that came out of that conversation we were having at this dinner was at least a lot of people who are playful are also very good at understanding the box in which they're operating, such that they may be able to take one of the lines of the box and wave it. And hearkens back to your point about knowing the ingredients and where they come from and the deep underlying structures of the world in which one's operating. The most playful people are the people that appear to be most enjoyable to be around, tend to know the base root level, the foundation level stuff, really, really well. Which maybe doesn't seem like a prerequisite of playfulness, but I think it really is productive playfulness anyway.

Vaughn: [01:01:59] I think for adults. For children, a lot of playfulness about exploration.

Patrick: [01:02:02] Yes.

Vaughn: [01:02:03] That actually is probably a useful distinction to make between adults being playful and children. I think the idea that you need to understand the game you're playing so that you can start to-

Patrick: [01:02:17] Mess with it.

Vaughn: [01:02:18] ... mess with it is something that you see again and again in improvisational art forms and things. The people who can really play literally, like music or basketball or something, all of the instincts for doing normal things have to become totally instinctual so that you can leave a lot of cognitive energy for spinning just nearly out of control, but not quite. That's something which I think there is actually quite a lot of research on flow states. You don't get into a flow state until you've rehearsed things a lot so that you can go on autopilot for a lot of things that are just not that much fun and spend a lot of time on the stuff that is fun, but exhausting. It's like terrifying, exhausting and fun at the same time. That can be really fun.

Patrick: [01:03:06] Are there other conclusions that you reached or toying with beyond this notion of who and how to hire and how to structure things that you think organizations can insert into their culture to make them more innovative?

Vaughn: [01:03:22] Yeah. There's a few things which I'm still tangling with. I think one of the things about organizations, especially as they get large, is that they tend to have, whether they're a book in an explicit written up form or it's implicit like the culture of the standard operating procedure for doing a thing, I think that sometimes can be very helpful. If you're trying to make a particular widget and there's only one way to do it, then there should be a standard operating procedure to do that. But for a lot of human businesses, let's say you're in asset management, there's not one way to evaluate a potential investment. There's lots of different ways. I won't put words in your mouth, but I'll ask you, are some of the most interesting discussions, the ones where people's assumptions about how to evaluate a potential investment are forced to come into the open and be debated against each other?

Patrick: [01:04:19] Yeah, 100%. Also, I've mentioned before that one of the favorite questions I have for other people that do what we do is to ask them, what about their business and culture would be hardest to copy? Not necessarily what about their actual investing process is hard to copy. That's the question that everyone else asks. What about the soil of the business would be hardest to copy? I find those to be the most interesting discussions because the investment process edge discussion is more like the paint and the tiles that you talked about. Whereas the organizational edge, if you will, often is the most peculiar answers and interesting answers. Also, I find when people have no answer to that whatsoever, you tend to wonder a little bit. Just like you mentioned at the beginning, this idea of talking to people about what quality means to them, this would be like the asset management version of that. Because people very quickly start to optimize for that thing. And some people don't even know what it is, which is even worse.

Vaughn: [01:05:14] Well, one of the things which I really want to do is I want to talk about quality to people in so many different domains, including things like investment. I think of investment as different from venture investment. So at some point, you'll be on the other side of this thing. To come back to that question, which you asked, I think when there are many ways of doing a thing, having a standard operating procedure can sometimes be counterproductive. Because most of the time, the person on the ground who actually has to do the thing understands the constraints and the resources that are available to him or her much better than the person who wrote the SOP. So there's an idea in complexity theory called equifinality where in any sufficiently complex system, there are multiple possible routes to get from point A to point B, that each one of those routes represents something which is optimal for a different set of ideas of what optimality means. Some of them will obviously not be optimal at all, but the fact that you can have so many different ways of getting from point A to point B means that if you understand clearly what you're trying to trade off and what you're not trying to trade off, you can choose the right path as long as you have the freedom to do it. So one of the things that as an organization, especially a large one, I think there is an idea that best practices are what organizations should be doing. You need to codify them so that you can communicate them to everyone who has to use them. And what that does is it prevents people who are, genuinely most people are very creative. You give them something that they have to do, you give them some resources and some constraints and let them go. Especially if you hired carefully and you created an environment in which you can trust and people feel trusted to do the right thing, it's often, I think you could create a situation where it's better to not have an SOP so that they just use their discretion to do something that works better than what the SOP would have done. And often, produces a result that is better for the organization and sometimes also better for the customer.

Source: Strong by Science

I think, I forget which hotel chain it is, but I think maybe it's Ritz Carlton that does it. They give every customer facing employee a level below which, I think it's a financial level, below which authorization does not need to be given for them to do something for the customer. So no SOP about what you do to make this customer happy. They ask for it. But if it's below this amount, you can just go ahead and do it. Supposedly it works really well. I've been meaning to follow up. This is like an apocryphal story that I think is true or someone does it. Maybe it's not Ritz Carlton, but I suspect that it actually gets used. Usually the things that make you really happy as a customer are things that are really, really cheap to do. As long as the employee who is interacting with you at that moment in time knows that there are no repercussions from doing it, often they'll just do it because it's not hard for them to do either. So giving them that freedom simply by setting... And that financial limit is, I think it's more cognitive than functional. It's just so that they know, yeah, go ahead and do it. Because most of the time, the thing that prevents people from doing something in a larger organization is the often fictitious idea that someone above them is going to give them a hard time for doing that thing.

Simplicity vs Complexity

Patrick: [01:08:15] Another undercurrent I'm recognizing in your thinking is the difference between simplicity and complexity, and taking the food is one example. So you have gone down this deep rabbit hole of understanding the ingredients and the resultant solution. It sounds like what you eat personally, we're not recommending this to anybody, but what you eat personally is incredibly simple relative to some of the other ideas or options out there. Tell me a little bit about how you think about whether just simplicity is a good rule of thumb and where there may be exceptions to that.

Vaughn: [01:08:48] I'm really glad you asked that, because I've also been thinking about this for a bit and trying to figure out how to explain it. I think there is a difference between simplicity and being simplistic, and also a difference between being complex and being complicated. I would say that now the things that I try and eat as much as possible, especially the things I cook myself or the things I go out to eat, they're all things that are very simple, but not simplistic, very complex and not complicated. I think the difference between all of that is, simplistic simply means reducing something which is more complex than what you reduced it to by getting rid of information. So you're de-dataizing it. Whereas simple is reducing all the unnecessary information away, leaving only the essential behind. And then complexity is different from complicated in the sense that, this part I'm having much more trouble. I know that there are different. I'm not quite sure how they are yet. How it manifests itself in the realm of food is for example, cooking a perfect French omelet. Have you ever cooked a perfect French omelet?

Patrick: [01:09:49] I've not personally cooked one.

Vaughn: [01:09:50] But you've eaten a perfect French omelet, right?

Patrick: [01:09:51] Yes.

Vaughn: [01:09:52] So it's like completely blind on the outside. There's no color in the outside. I like the ones that are perfectly custardy all the way through, not wet on the inside. So in order to do that, it's super simple, not simplistic. It's also not complicated, but it's actually really complex. There's a lot of knowledge that you need to have to be able to do that. So much embodied knowledge of knowing, based on how things smell, look, sound, the motions of your hand as you flip the pan, when to flip the pan to produce that perfect outcome. That is very simple. That's complex, but it's not complicated. But I could not put it in an abstractified way. That's basically what I want now. If I go somewhere, I want someone who's cooking with a lot of complex knowledge, who is trying very hard actually to make it as simple as possible. Part of that is there's a lot of complexity involved in sourcing the right ingredients. But ultimately, when you actually get them, it's very classically like a California cuisine thing where they say you just buy the good ingredients and the cooking takes care of itself. In a way, it's true.

Cannabis

Patrick: [01:10:59] If I were to do a soundbite of everything you just described, it could be for the iPhone. It's amazing how portable those ideas are. When you think about your own future, is it basically, and I want to talk about things like cannabis is something I know you're interested in and I want to hear what else you're interested in, but also how you're thinking about applying these ideas to those places. Now taking your several experiences and doing what the restaurant did and letting them compound. Let's just take the example of cannabis. What is interesting to you about that field? How will what you've learned in the past apply to how you approach that industry?

Vaughn: [01:11:34] One reason why I'm interested in it is I think people are realizing that there is something interesting going on there. So there's a lot of money, attention, time being poured inside. That just makes it interesting-

Patrick: [01:11:44] There's a tailwind.

Vaughn: [01:11:46] There's a tailwind effect. That's interesting. Just the same as I'm slightly interested in cryptocurrencies, because there's so much interest in it. Mostly that one, I'm mostly skeptical about for other reasons. What to me is very interesting about the whole cannabinoid industry and the endocannabinoid system that that industry is intended to try and stimulate is that in so many ways, all that discourse until very, very recently, has been exactly the same as with food. Let's just care about the processing and these two things that we care about. We care about CBD, we care about THC, and now we care more about all these other complex cannabinoids that come out of the plant.

I think my gut says that if I were ever to consume this stuff systematically, which I don't at the moment, because I don't see the need for it personally, I would not want to consume most of what was being produced because where is it grown? What was it grown on? What was used to grow it? How was it processed? You extract all these oil-based things out of a plant. What are you using to extract it? Sometimes it's carbon dioxide, sometimes it's other solvents. What do you do with the solvents once you've extracted it? Most people that sell you the products will have no idea. Most people who work at the companies that make the products that are sold to you also have no idea. You have to usually talk to someone who's the chief production officer, the chief science officer before they'll start to tell you what solvents are used, how they remove them from the final product. I think there will be at some point among a rarefied, probably quite wealthy fraction of the consumers of these products, there will be a desire for the cannabinoid equivalent of the kind of food that you like to eat and that I like to eat. That will initially start with the processing phase, which is what we also started with food. And they'll move backwards into the growing phase. We'll also start to see, I think, a desire to consume whole plants, not extracts, and whole plants that are from old varieties, not new bred ones. That I think is very cool, but I think possibly also fundamentally unscalable. I'm not sure what's in the future personally for me, but I suspect it won't be massive scale. I think it would be nice to figure out a way to enable highly distributed, but massive unscalable stuff. Lots and lots and lots of people who are doing things that individually will not scale, but are able to do them more efficiently and better because they've got technology infrastructures that support them.

Right now if you're a large company growing a lot of hemp to produce CBD, for example, you benefit from economies of scale with production, with processing, with marketing, with sales, with regulatory. What can you do as a service layer so that you can replicate some of those advantages of scale without having to grow this stuff and process this stuff at scale? Maybe, that's a possibility. It could be quite interesting. I'm not quite sure where that goes. I think part of the problem with that is from a regulatory perspective, every jurisdiction so far is slightly different, making it very hard to scale outside of very large jurisdictions. So in the EU, for as long as it lasts, there's a possibility. Within the US, there's definitely a possibility to do two things, but they might end up being something like how China's internet market is so weirdly different from everywhere else in the world, because it's like a little ecosystem that's very protected from everything else by regulation. That's one thing which is interesting. I think that metaphor that you made at the beginning about thinking about the chain, inputs, processes, and outputs. We always start, it seems, by caring a lot about single sets of outputs. We're very focused on particular things that we're optimizing for. And as we go backwards down into process and into inputs, we realize that the outputs that we cared about are not necessarily the right ones. We add more outputs that we care about. We change what we think those outputs should be. We change the levels that we think they should be. And that process of learning, I think, applies across everything that you consume and do for yourself and do to yourself. It would be quite interesting to figure out a way to help people systematically figure that out. How do you force yourself to rethink what you're trying to achieve in everything that you do without going into processing overload? Because I don't know how to do that, but it would be quite cool.

Patrick: [01:16:10] Every hard business problem I've ever seen relates to getting the output right. Asking the right question.

Vaughn: [01:16:16] Totally.

Patrick: [01:16:17] It's really hard to do.

Vaughn: [01:16:19] Even now, if you teach it in undergraduate business strategy class, some of the textbooks that you'll use, like the textbook that I'm forced to use, will say things like the goal of a business is to maximize profit for its shareholders. So immediately you've got this assumption that somehow profit is the only outcome that you should optimize for it. And then all this other stuff-

Patrick: [01:16:38] Ends justify the means.

Vaughn: [01:16:40] Yeah, for sure. And then all this other stuff gets fucked up as a result. I think the fact that lots of people who run businesses and start them and invest in them say that the most important thing in business is to figure out what the business is about. And yet at the same time, we train people to think that there are only one or two or three things that businesses should be about. There is so much cognitive dissonance going on in there. I don't understand it. But you literally cannot tell someone who has not done it yet, that it doesn't really matter what other people tell you your business should be about. It just matters what you think it should be about. It takes a really long time to figure that out in the first place. And then once you've figured it out, it takes a long time to figure out what that thing that matters is.

I think to come back to something we started, this whole conversation talking about the businesses that seem to do the best things. And make the stuff that I like, maybe you like, and also where the people who run the businesses are, they're not just making money from it, but they're satisfied with the business itself. They're the ones who have either accidentally or intentionally done this thinking. And it's taken them a long time. They may have failed at businesses before because they didn't understand what they wanted out of the business. And then after failing a long time working in a lot of companies that felt like they might be the right thing but aren't, they eventually get to the point where, okay, you know what, now I think I know. And when they try it out, it is right.

Patrick: [01:18:02] It's also amazing how often companies that do this well end up being really successful despite it seeming ridiculous that they might be. The one that comes to mind right now is Superhuman, this new email client. I actually haven't used Superhuman. I've seen other people use it. It sits on top of Gmail. I think it's $30 per month. It's a SaaS business. No one pays anything for email. The whole world has email for free. And the simple proposition that you would charge someone $30 a month for their email app is ridiculous on the face of it. But because they are optimizing, in my understanding, for things like inbox zero for power users of email, and they have this incredible commitment to design. And some of the things that people have shown me are just gorgeous. I don't know how else to put it. They're just so well-conceived based on this very different outcome variable. People are willing to pay. I think always back to Andy Rachleff, who was on the podcast a long, long time ago, and it's kind of four by four matrix. You need to be against the crowd and right to be successful in business and investing. Maybe the summary of our conversation today is that the best way to be against the crowd is focused on this, what does quality mean? And spend an enormous amount of time on that problem.

Vaughn: [01:19:19] Absolutely. That is probably the single most important thing that you could take away from this as a way of thinking about how you take action generally about anything. If there's one thing I would add to that, it would be that, especially when things are changing in ways that you cannot really predict, the best way to do that is to keep an open mind. It sounds so simple, but keeping an open mind simply means being willing to, if there is evidence to support doing this, to tear away the foundations of everything you've built up cognitively to build a new thing. If you are able to keep on doing that, then over time it gets easier and easier to do it. And you are much more adaptive as things change around you than people who have spent their entire lives building very, very, very strong foundations that hold up against minor changes in the environment until the change becomes really, really big and then they're fucked.

Patrick: [01:20:13] My closing question for everybody is for the kindest thing that anyone's ever done for you.

Vaughn: [01:20:18] The most recent kindest thing that anyone's done for me was a really big one. It was to read an entire manuscript of something and tell me what was really, really fundamentally wrong with it. I can't say who that person is, but it was very important. I think it was especially kind because of the way they were able to explain what was wrong with it. I think it was really very hard for them to do that.

Patrick: [01:20:45] Cool. This has been eclectic as hell, as I said it would be at the beginning. I'm sure that there's tons that we didn't get to that people would find fascinating. So maybe we'll do it again soon?

Vaughn: [01:21:55] Yeah, I hope so.

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