I have found an interesting article written by Michael Simmons. This is the link to the full article.
Here I share only some of his interesting comments. If you like what you read, go for the full article.
“The greatest CEOs that we ever studied manage for the quarter… century.” ― Jim Collins
According to Simmons, self-made billionaire entrepreneurs like Jeff Bezos, Bill Gates, Warren Buffett, Ray Dalio, and Elon Musk “see in 4D while most people see in 1D:”
- Dimension 1: Focus on one field (specialization)
- Dimension 2: Learn across disciplines, apply to a specialty (polymath)
- Dimension 3: Think vertically from hacks to principles (mental models)
- Dimension 4: Think hundreds of years into the past and future (time)
The Power Of The Long Game
Where almost all public company CEOs, not to mention people in general, plan days, weeks, and months ahead, these visionaries think decades or even centuries into the future. And they don’t just plan: They put their money where their mouths are. They make bold bets that won’t pay off anytime soon — and that have a high probability of failure.
Jeff Bezos’ Unique Approach To Long-Term Thinking
Take this Jeff Bezos interview where he makes a very surprising proclamation:
I believe on the longest time frame — and really here I’m thinking of a timeframe of a couple of hundred years — I get increasing conviction with every passing year, that Blue Origin, the space company, is the most important work I’m doing.
Explaining why his space company will be more important than Amazon in the future, he says…
I’m pursuing this work [with Blue Origin] because if we don’t, we will eventually end up with a civilization of stasis, which I find very demoralizing. I don’t want my great grandchildren’s great grandchildren to live in a civilization of stasis.
According to Bezos, the cause of the stasis is an upcoming energy crisis…
But for Bezos here, the word ‘upcoming’ means a few hundred years from now.
As soon as you read these words, you start to realize that Bezos is coming from an entirely different paradigm…
- Bezos believes Amazon is just getting started even though it’s nearly 30 years old. He refers to this mindset as the “Day One Philosophy”, and it’s baked into Amazon’s culture.
- Bezos is willing to repeatedly lose billions of dollars on bold experiments that are likely to fail and will take seven years for the experiment to pay off.
- Bezos’ daily focus is three years into the future. Most CEOs focus on putting out fires, dealing with quarterly shareholders, and driving to hit their quarterly earnings. Bezos explains how he does things differently in a fascinating interview with Forbes, “Friends congratulate me after a quarterly-earnings announcement and say, ‘Good job, great quarter.’ And I’ll say, ‘Thank you, but that quarter was baked three years ago.’ I’m working on a quarter that’ll happen in 2021 right now… I get to work two or three years into the future, and most of my leadership team has the same setup.”
A long-term time horizon is the “decoder” that makes Amazon’s iconoclastic strategy over the years make sense.
Without long-term thinking, Amazon would never have:
- Expanded from the world’s largest bookstore to the world’s largest everything store.
- Focused on deferring profits for most of its first 20 years.
- Focused on making bold bets on customer experience (ie — free two-day shipping) that would result in significant losses in the short-term.
- Kept experimenting with a third-party sellers program after the first two experiments (auctions and Zshops) flopped.
- Structured employee compensation plans to heavily focus on long-term incentives.
But Bezos isn’t alone.
Sam Altman, the former president of Y Combinator, the largest startup accelerator in the world, refers to long-term thinking as “one of the few arbitrage opportunities left in the market.” He adds, “When you’re thinking about a startup, it’s really worthwhile to think about something you’re willing to make a very long-term commitment to because that is where the current void in the market is.”
Warren Buffett is famous for only investing in companies and individuals he could see himself investing in for decades into the future. He has built his whole career on the power of compound interest and compound learning. He has purposely kept his lifestyle expenses low so that his money could compound. In addition, he has spent 80% of his time reading and thinking for his entire career.
In a TED interview, Elon Musk shows that he also thinks about time differently than almost everybody…
I look at the future from a standpoint of probabilities. It’s like a branching stream of probabilities. And there are actions that we can take that effect those probabilities or that accelerate one thing or slow down another thing, introduce something new to the probability stream.
The Top 3 Reasons The Long Game Works Wonders
#1: Thinking long-term gives you an “arbitrage” advantage because almost no one else thinks long-term
“If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people. But if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people because very few companies are willing to do that. Just by lengthening the time horizon, you can engage in endeavors that you could never otherwise pursue.” ― Jeff Bezos
The biggest innovation opportunities take many years to pay off and have low odds of success. Therefore, many traditional CEOs don’t pursue them. This means that Bezos, Musk, and others have less competition for super high-quality investments. This approach has given Amazon, Tesla, and SpaceX several-year huge head starts against other companies.
In other words:
- In the market of business opportunities, there are short-term actors and there are long-term actors.
- Short-term actors only pursue opportunities that pay off in a short-period of time. Long-term actors pursue the best opportunities, whether they are short-term or long-term.
- Therefore, long-term actors have a larger basket of opportunities to choose from.
- Longer-term opportunities are almost always the largest opportunities.
- There is little competition for long-term opportunities.
#2: Having a long-term time horizon helps you make better decisions
Long-term thinking supports the failure and iteration required for invention, and it frees us to pioneer in unexplored spaces. Seek instant gratification — or the elusive promise of it — and chances are you’ll find a crowd there ahead of you. — Jeff Bezos
In Time Paradox, one of the most recognized psychologists of all time, Stanford professor Philip Zimbardo, concluded that our attitudes toward time have a profound impact on our lives that we seldom recognize. Our time horizons are as invisible to us as water is to fish, but they have everything to do with how we make decisions and how successful we are.
After surveying more than 10,000 people with the Zimbardo Time Perspective Inventory, Zimbardo found that attitudes toward time fall into five categories:
- Past positive people focus on the “good old days”.
- Past negative people focus on all the things that went wrong in the past.
- Present hedonistic people live in the moment, seeking pleasure and avoiding pain.
- Present fatalistic people feel that decisions are moot because, “What will be, will be.”
- Future-oriented people plan for the future and trust that their decisions will work out.
Each of these mindsets is like living in a different world, but…
Future-oriented people tend to be more successful professionally and academically, to eat well, to exercise regularly, and to schedule preventative doctor’s exams. The mantra of a Future is “meet tomorrow’s deadline, complete all the necessary work before tonight’s play.” Futures consider work a source of special pleasure. Tomorrow’s anticipated gains and losses fuel today’s decisions and actions.
When challenged to solve maze puzzles as quickly as they could, present-oriented people responded very differently from future-oriented ones.
The Presents started immediately from the start, moving their pencils through the maze. The Futures did not move at all at first, looking for the goal, then working backwards to the starting point, checking out dead ends along the route. The Futures always won.
Bottom line: Our “time horizons” determine our decisions. Decisions determine our destiny.
#3: Long-term thinking leverages the power of compounding
Einstein famously called compound interest the eighth wonder of the world. Warren Buffett said that compound interest was one of the top three factors that led to his success.
If we do the right things consistently over a long period of time, the future we want becomes more and more inevitable because our actions compound upon one another over time.
Just as a small snowball being rolled down the hill slowly picks up snow with each rotation and becomes a huge one:
Or how a tiny domino can eventually knock over a huge one if you give the momentum time to compound upon itself:
With both the snowball and the dominoes, the ending is inevitable.
We’re Wired To Think Short-Term
In a TED talk, the late and renowned Harvard Professor Clayton Christensen shares a story that perfectly captures the situation:
As Christensen tells it, when he graduated from Harvard Business School, all of his classmates had ambitious plans to make an impact and be successful. At their early class reunions, everything seemed like it was on track. People were sharing all of their successes.
However, as time passed by, he noticed something surprising. People’s lives got worse and worse on many levels:
- They got divorced
- They became estranged from their kids
- Some even got in trouble for fraud
- They suffered poor health
Christensen explains why:
Everyone here is driven to achieve. And when you have an extra ounce of energy or an extra 30 minutes of time, instinctively and unconsciously you’ll allocate it to whatever activities in your life give you the most immediate evidence of achievement.
In other words, his classmates got stuck in short-term thinking.
Similarly:
The reason why successful companies fail is that they invest in things that provide the most immediate and tangible evidence of achievement. And the reason why they have such a short time horizon is that they are run by people like you and I [people focused on achievement].
To have the largest impact in the long-term, we necessarily must go slower in the short-term.
