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How The Smartest And Most Successful People Think And Act

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There are various things which smart and successful people do, how they think, and how they behave (as a cause or a consequence). One essential and very crucial element though is the fact that they have understood that in order to make good decisions both in life and in business one must be able to comprehend some of the essential underlying principles of the world, society, and nature. 

They use particular sets of “life and business models,“ like a tool box, which help them to guide and focus their thinking. They apply these tools to different situations as needed. Academics have coined them “mental models,“ defined as a collection of someone’s thought process about how something works in the real world. As such mental models assist in seeing a problem from different perspectives.

All of us can do the same. And it´s not about being able mastering everything, but rather studying the biggest ideas and principles (models) from different disciplines such as physics, sociology, philosophy, management, etc. One should know a group of models (called a network or latticework of models) to use some of them in one situation and others in differing situations; resulting in better decisions. The idea for building such a latticework comes from Charlie Munger, Vice Chairman of iconic Berkshire Hathaway and currently one of the best multi-disciplinary thinkers in the world.

The 2-List System

Warren Buffett, aka the “Sage of Omaha,“ is not only pretty wealthy, but also a master in time management, focus setting, and priority management. It is said that one day Buffett asked his pilot to draft a list with the 25 most important things he wanted to do in his life. In a next step Buffett asked him to circle the 5 most crucial ones. Buffett challenged his pilot to solely focus on those 5 to avoid being distracted. Consequently, only when you figure out your priorities and follow through with dedicated and concrete action plans you set your own agenda and will succeed.

Eisenhower Matrix (Eisenhower Box)

Dwight Eisenhower was the 34th President of the United States and was highly productive over decades of his life. His most famous productivity strategy is known as the Eisenhower Matrix which is a rather simple decision-making tool that you can use without any practice by separating your actions based on four possibilities:

1. Urgent and important (tasks you will do immediately).

2. Important, but not urgent (tasks you will schedule to do later).

3. Urgent, but not important (tasks you will delegate to someone else).

4. Neither urgent nor important (tasks that you will eliminate).

SMART Formula

SMART is a mnemonic acronym, giving criteria to guide in the setting of objectives, for example in project management, employee-performance management and personal development. Ideally speaking, each corporate, department, and section objective should be: Specific – target a specific area for improvement; Measurable – quantify or at least suggest an indicator of progress; Agreed upon – specify who will do it; Realistic – state what results can realistically be achieved, given available resources; Time-related – specify when the result(s) can be achieved.

KISS Principle

One of my favorite ones. KISS is an acronym for “Keep it simple, stupid” as a design principle noted by the U.S. Navy. The KISS principle states that most systems work best if they are kept simple rather than made complicated; therefore simplicity should be a key goal in design and unnecessary complexity should be avoided.

Lateral Thinking

Versus Critical Thinking (which is primarily concerned with judging the true value of statements), Lateral thinking – the term was coined by the physician and psychologist Edward de Bono - is about solving problems through an indirect and creative approach, using reasoning that is not immediately obvious and involving ideas that may not be obtainable by using only traditional step-by-step logic. Techniques are e.g. Random Entry Idea, Provocation Idea, Disapproving or de Bono´s Six Thinking Hats Approach (Parallel Thinking).

Wonder Questions

Our education systems, way of life, and even the business world is not geared toward questions. Moreover, we often tend to address topics in a superficial manner by asking questions which rather test and reward knowledge (mostly using closed questions) than stimulating inquisitiveness (applying e.g. open questions). To flip that I suggest to apply the model of “Wonder Questions, ” a set of powerful questions: The Why and Why Not questions; The What If and What If Not questions; The What Else, and the How questions.

Network Effect

A network effect (also called network externality or demand-side economies of scale) is the effect that one user of a good or service has on the value of that product to other people. When a network effect is present, the value of a product or service is dependent on the number of others using it.

Working Backwards

One should always start with the customers´ wants and needs and work backwards. This is quite different to what most organizations do in reality (although many would not admit it) when they develop ideas, products, and services which they like… and not necessarily their customers. To sum it up: What is best for your customers is ultimately also best for your company.

Culture of Lifelong Learning

To evolve and get better we need to learn. Learning (also) comes from failing. Therefore using failures as “stimulators and energizers” is very powerful for any organization. A setback is the second name of success. Failing early and failing often, and getting up again, and again. A center piece of innovation. Welcome failure as an essential part of learning and improvement to establish “Lifelong learning,” i.e. an ongoing, voluntary, and self-motivated pursuit of knowledge for either personal or professional reasons. It does not only enhances social inclusion, active citizenship, and personal development, but also self-sustainability, as well as competitiveness and employability.

Humanness Principle

Whatever a person is doing, she should stay human, approachable, and show respect towards others. One should choose being people-focused over task-focused, even and especially, when push comes to shove. Believing in the good and staying open-minded. Being curious without being naive and willing to confront one´s own weaknesses to learn and grow. Giving and supporting others without expecting anything in return. Possessing solid core values. Adapting if necessary without betraying what one believes in and what one stands for.

Pygmalion Effect (Rosenthal Effect)

A phenomenon whereby higher expectations lead to an increase in performance. The effect is named after the Greek myth of Pygmalion, a sculptor who fell in love with a statue he had carved, or alternately, after the Rosenthal–Jacobson study. A corollary of the Pygmalion effect is the golem effect, in which low expectations lead to a decrease in performance; both effects are forms of self-fulfilling prophecy. By the Pygmalion effect, people internalize their positive labels, and those with positive labels succeed accordingly. The idea behind the Pygmalion effect is that increasing the leader’s expectation of the follower’s performance will result in better follower performance.

The Peter Principle

The Peter principle is a concept in management theory formulated by Laurence J. Peter. It states that the selection of a candidate for a position is based on the candidate’s performance in their current role, rather than on abilities relevant to the intended role. Thus, employees only stop being promoted once they can no longer perform effectively, and “managers rise to the level of their incompetence.”

Decision Tree 

A decision tree is a decision support tool that uses a tree-like graph or model of decisions and their possible consequences, including chance event outcomes, resource costs, and utility. It is one way to display an algorithm.

Spacing Effect

The spacing effect is the phenomenon whereby learning is greater when studying is spread out over time, as opposed to studying the same amount of content in a single session. That is, it is better to use spaced presentation rather than massed presentation. Practically, this effect suggests that “cramming” (intense, last-minute studying) the night before an exam is not likely to be as effective as studying at intervals in a longer time frame.

Butterfly Effect

The butterfly effect is the concept that small causes can have large effects. Initially, it was used with weather prediction but later the term became a metaphor used in and out of science. In chaos theory, the butterfly effect is the sensitive dependence on initial conditions in which a small change in one state of a deterministic nonlinear system can result in large differences in a later state.

Janusian Thinking (Paradoxical Thinking)

Also called Paradoxical Thinking. It involves creating a paradox or contradiction by conceiving of two opposing ideas as being currently true. Examples are “Winning by losing“ or “Disagreeing and committing“ or “Setting realistic yet challenging goals.“ The contradiction and its meanings will generate new insights and ideas.

Disney Creativity Technique

From the master of creativity himself. An offspring of his vivid imagination to produce truly fantastic(al) ideas. To generate and evaluate new ideas Walt Disney would have shifted his perspective three times by playing three separate and distinct roles: the dreamer (generating as many fantasies as possible), the realist (working the fantasies into practical ideas), and the critic (poking holes into the idea).

Plus One Minus Two Rule

Whenever you introduce something new (e.g. a new product, service offer, process, KPI, etc.) take out two existing, similar ones. It´s like following a health diet and working out at the same time. Careful not becoming too lean at a certain point however. You need sufficient energy to outrun your competitors.

BATNA (Best Alternative to a Negotiated Agreement)

In negotiation theory, the Best Alternative to a Negotiated Agreement or BATNA is the most advantageous alternative course of action a party can take if negotiations fail and an agreement cannot be reached. BATNA is the key focus and the driving force behind a successful negotiator. A party should generally not accept a worse resolution than its BATNA. Care should be taken, however, to ensure that deals are accurately valued, taking into account all considerations, such as relationship value, time value of money and the likelihood that the other party will live up to their side of the bargain. These other considerations are often difficult to value, since they are frequently based on uncertain or qualitative considerations, rather than easily measurable and quantifiable factors.

Win-Win Game

This is a game which is designed in a way that all participants can profit from it in one way or the other. In conflict resolution, a win–win strategy is a collaborative strategy and conflict resolution process that aims to accommodate all participants. Mathematical game theory also refers to win–win games as non-zero-sum games (although they may include situations where both players win or lose, as well).

Reversible and Irreversible Decisions (One-Way or Two-Way-Doors Decisions)

For a reversible decision (aka two-way-door decision), if it were not good you can change it. However, a irreversible decision (aka one-way-door decision) is very expensive, difficult or even impossible to be changed or reversed.

Dunbar´s Number

Dunbar’s number is a suggested cognitive limit to the number of people with whom one can maintain stable social relationships—relationships in which an individual knows who each person is and how each person relates to every other person. By using the average human brain size and extrapolating from the results of primates, British anthropologist Robin Dunbar proposed that humans can comfortably maintain only 150 stable relationships. Dunbar explained it informally as “the number of people you would not feel embarrassed about joining uninvited for a drink if you happened to bump into them in a bar.”

Minimum Viable Product (MVP)

A minimum viable product has just those core features sufficient to deploy the product, and no more. Developers typically deploy the product to a subset of possible customers, such as early adopters thought to be more forgiving, more likely to give feedback, and able to grasp a product vision from an early prototype or marketing information. This strategy targets avoiding building products that customers do not want and seeks to maximize information about the customer per dollar spent.

Pareto Principle (80/20 Rule)

The Pareto principle (also known as the 80/20 rule, the law of the vital few, or the principle of factor sparsity) states that, for many events, roughly 80% of the effects come from 20% of the causes. It is a common rule of thumb in business; e.g., “80% of your sales come from 20% of your clients.” Mathematically, the 80/20 rule is roughly followed by a power law distribution (also known as a Pareto distribution) for a particular set of parameters, and many natural phenomena have been shown empirically to exhibit such a distribution.

Economies of Scale

Economies of scale are the cost advantages that enterprises obtain due to size, output, or scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output. Often operational efficiency is also greater with increasing scale, leading to lower variable cost as well. Economies of scale apply to a variety of organizational and business situations and at various levels, such as a business or manufacturing unit, plant or an entire enterprise.

Opportunity Cost

The opportunity cost, also known as alternative cost, is the value (not a benefit) of the choice of a best alternative cost while making a decision. A choice needs to be made between several mutually exclusive alternatives. Assuming the best choice is made, it is the “cost” incurred by not enjoying the benefit that would have been had by taking the second best available choice.

Sunk Cost

A sunk cost is a cost that has already been incurred and cannot be recovered. Sunk costs (also known as retrospective costs) are sometimes contrasted with prospective costs, which are future costs that may be incurred or changed if an action is taken. However, Sunk costs do, in fact, influence actors’ decisions because humans are prone to loss aversion and framing effects. In light of such cognitive quirks, it is unsurprising that people frequently fail to behave in ways that economists deem “rational”.

Loss Aversion

Loss aversion refers to people’s tendency to prefer avoiding losses to acquiring equivalent gains: it’s better to not lose $5 than to find $5. Some studies have suggested that losses are twice as powerful, psychologically, as gains. Loss aversion was first demonstrated by Amos Tversky and Daniel Kahneman.

False Positives and False Negatives

A false positive error (also called type I error), or in short false positive, commonly called a “false alarm”, is a result that indicates a given condition has been fulfilled, when it has not. I.e. erroneously a positive effect has been assumed. In the case of “crying wolf” – the condition tested for was “is there a wolf near the herd?”; the result was that there had not been a wolf near the herd. The shepherd wrongly indicated there was one, by calling “Wolf, wolf!” A false negative error (type II error), or in short false negative, is where a test result indicates that a condition failed, while it was successful. I.e. erroneously no effect has been assumed. A common example is a guilty prisoner freed from jail. The condition: “Is the prisoner guilty?” is true (yes, the prisoner is guilty). But the test (a court of law) failed to realize this, and wrongly decided the prisoner was not guilty.

Boiling Frog Symbol

The boiling frog story is generally offered as a metaphor cautioning people to be aware of even gradual change lest they suffer eventual undesirable consequences. It may be invoked in support of a slippery slope argument as a caution against creeping normality. It is also used in business to reinforce that change needs to be gradual to be accepted. Oppositely, the expression “boiling frog syndrome” is sometimes used as shorthand to invoke the pitfalls of standing pat

Slippery Slope Argumentation

By using this argumentation approach a party asserts that a relatively small first step leads to a chain of related events culminating in some significant (usually negative) effect, much like an object given a small push over the edge of a slope sliding all the way to the bottom. If we allow A to happen, then Z will eventually happen too, therefore A should not happen. The problem with this reasoning is that it avoids engaging with the issue at hand, and instead shifts attention to extreme hypotheticals. Because no proof is presented to show that such extreme hypotheticals will in fact occur, this fallacy has the form of an appeal to emotion fallacy by leveraging fear. In effect the argument at hand is unfairly tainted by unsubstantiated conjecture.

Thinking-Feeling-Thinking Loop

The way we think affects our body as well as our life. As such also the lives of our colleagues, team members, family, and friends. You might have heard the phrase “Mind over Matter”, meaning that there is a strong connection between mind and body. Your every thought produces a biochemical reaction in the brain. The brain then releases chemical signals that are transmitted to the body, where they act as the messengers of the thought. The thoughts that produce the chemicals in the brain allow your body to feel exactly the way you were just thinking. So every thought produces a chemical that is matched by a feeling in your body. Essentially, when you think happy, inspiring, or positive thoughts, your brain manufactures chemicals that make you feel joyful, inspired, and uplifted.

Cognitive Biases

It´s key to understand the most relevant cognitive biases. A cognitive bias refers to the systematic pattern of deviation from norm or rationality in judgment, whereby inferences about other people and situations may be drawn in an illogical fashion. Biases can be distinguished on a number of dimensions. It is helpful to know some of the most common ones like the Bandwagon Effect (the tendency to do or believe things because many other people do or believe the same; related to groupthink and herd behavior), the Confirmation Bias (the tendency to search for, interpret, focus on and remember information in a way that confirms one’s preconceptions), the False Consensus Effect (the tendency for people to overestimate the degree to which others agree with them), or the Hindsight Bias (the inclination to see past events as being more predictable than they actually were; also called the “I-knew-it-all-along” effect). A great list of cognitive biases you can find here.

The latticework of mental models puts the models in a useable form to analyze a wide variety of situations and enables everyone of us to make better decisions. Using multiple models to enrich your perspectives on how to approach a problem or task.

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