Finite players play to beat the people around them. Infinite players play to be better than themselves.
I could’ve been reading an article analyzing Roger Federer and Rafael Nadal. Except I wasn’t.
ENTER: Simon Sinek
I was listening to Sinek (he was talking at Google) use game theory to describe the kinds of ‘games’ companies engage in: finite games, where the objective is to win (or cause all other participants to stop playing), or infinite games, where the objective is to continue the game as long as possible.
I first came across this line a few months ago. It has stayed with me since then. Suddenly, companies and leaders were falling into either one of these categories for me. If you are an entrepreneur, quite likely Sinek’s line speaks to you too. And you’ll start placing companies into one of these categories. I hope you will, at least.
Take Sinek’s examples as a starting point. Microsoft (under Ballmer’s leadership) executives used to tout how much better their products were compared to Apple. Apple, at the same time, however talked more about end results they were working to achieve. Microsoft, says Sinek, was playing a finite game, whereas Apple was onto an infinite game of self-improvement. Which approach is better did you ask? The business results of both Microsoft and Apple from the time speak volumes about the merits of each approach.
ENTER: Paul Graham
Understanding finite vs infinite games isn’t merely an exercise in the abstract. There is more. Lace it with investor and writer, Paul Graham’s mental model of good vs bad test, and I’d argue that we have a conceptual framework that is critical for business leaders anywhere.
Graham’s recent post about unlearning is a masterclass in understanding the merits of startup life relative to life at institutions like schools or large corporations.
The most damaging thing you learned in school wasn’t something you learned in any specific class. It was learning to get good grades.
Graham’s core idea is that it’s important to know whether you’re spending energy solving a challenge that’s directly connected to reality (studying for a good test), or a challenge that isn’t, usually imposed by an authority (bad test). Recognizing and destroying bad mental models may be even more valuable than adding new ones.
What is the litmus test for a good or bad test? Bad tests are inherently ‘hackable,’ meaning that with clever and directed energy, we can often find a shortcut to ‘scoring well’ on that test and acquiring a label of success without fully solving the underlying challenge. Good tests, on the other hand, are ‘unhackable,’ so we can either succeed at solving the challenge to a varying extent, or fail entirely.
A test in a class is supposed to measure not just how well you did on that particular test, but how much you learned in the class.
Good tests like curing cancer, making education free for anyone, or even winning a tennis match are inherently more engaging because the best scientist, entrepreneur, or player will typically win in each respective scenario.
ENTER: Elon Musk
Sinek and Graham’s models seemed familiar the first time I encountered them, and I wondered why. In filing away these new mental models, I was reminded of their neighbor in the idea world: thinking from first principles, especially as popularized by Elon Musk:
Physics teaches you to reason from first principles rather than by analogy. So I said, okay, let’s look at the first principles. What is a rocket made of? Aerospace-grade aluminum alloys, plus some titanium, copper, and carbon fiber. Then I asked, what is the value of those materials on the commodity market? It turned out that the materials cost of a rocket was around two percent of the typical price.
SpaceX went on to cut the cost of rocket launch by ~90%, while still making a profit.
Why didn’t the giant aerospace incumbents figure this out first?! In my view, the incumbents were busy playing finite games against their competitors, hacking bad tests, and thinking derivatively from their last quarterly results, rather than from first principles. Textbook opportunity for disruption.
Sinek + Graham + Musk For the Win
Good tests map beautifully to infinite games and first principles thinking. All three mental models seem to reinforce a simple message: think like a scientist.
Infinite leaders, says Sinek, filter decisions first through the unchanging values of a company. And only then, factor in the company’s dynamic interests. This may result in sub-optimal single decisions and failures along the way. However, over the years, the long string of decisions strung together will be more cohesive and, therefore, valuable (assuming the company’s values are well set up).
The political environment of a classroom, or large company, is often set up to reward those that hack bad tests and finite games, since the isolated outcome looks favorable. We don’t consider how that outcome will eventually be strung together with other outcomes in order to fully connect with reality.
The book What Have You Changed Your Mind About? chronicles painful realizations by experts playing a finite game in their area of expertise. In it, a successful hedge fund manager, Nassim Taleb (author of the excellent book Antifragile), talks of how he lost faith in probability as a guiding light for making decisions.
Good tests, infinite games and first principles thinking aren’t for everyone. For others, it’s the only way to go.
Helpfully, and devastatingly, startups afford little-to-no buffer from the real world. The company either solves the challenge, or dies. This kind of instant feedback and intolerance for ‘hacks’ forces infinite game leadership at startups – painful in the short term, but ultimately more rewarding for everyone involved. And the true test of an entrepreneurial leader? As Satya Nadella said, while transitioning Microsoft from a finite game to an infinite game, leaders must find the rose petals in a field of S#$@.
What bad tests or finite games are you putting energy into? Where have you applied first principles thinking?
In this, the first episode of the Exponent podcast, we talk about our background, Microsoft and disruption, and the meaning of culture. We also explore our goals for this podcast, and just a bit about Taiwanese garbage trucks.
- If Steve Ballmer Ran Apple link
- The Halo Effect:…and Eight Other Business Delusions that Deceive Managers link
- Skating Towards the Goal link
- Bill Gates’ Steve Jobs Moment link
- Friction link
- Note: The Internet Explorer rendering engine is called Trident, not Triton
- Companies get disrupted when they focus on maximizing profit and less on building the best product.
- Steve Balmer was a sucessful CEO from the standpoint of maximizing shareholder value for a ~10 year period.
- But what about in the long run: 30 or 50 or 100 years
- What is the purpose of corporations?
- Should companies milk their core business over a lifecycle and not try to maintain themselves after that.
- Would it be better for Microsoft to generate billions for shareholders and have them reinvest in a bunch of startups.
President Donald Trump and Tim Cook’s relationship really started after Trump’s election win in 2016, when the Apple CEO and several other CEOs visited the president-elect at Trump Tower. Since then, Apple has became the corporate mascot for Trump’s trade war against China. And Cook put on the charm offensive to help save the tech giant’s bottom line.