THE BLOG

Simple Principles for a Complex World

02/10/2015 07:05 am ET | Updated Apr 12, 2015

For the past 40 years I have searched for simple, elemental, elegant and parsimonious principles that can guide us to make money, have a successful and enjoyable career, live happily and nudge the world a bit further in the right direction.

To qualify, a principle must be so overwhelmingly powerful that any ordinary mortal -- like you or me -- can use it to create extraordinary results from ordinary brainpower and ordinary energy and effort.

The use of simple principles -- rules of thumb -- makes me an extreme reductionist. Reality is so multi-faceted and multifarious that use of simple principles may seem primitive or fundamentalist. Sticking to one or a few principles may seem unrealistic in a world that is clearly getting increasingly complex, where it is hard to predict the results of anything, and where random events can and do throw everything out of kilter.

In this blog post, however, I'm going to attempt to persuade you of two things.

One is that in general the use of one or a few proven principles is a sensible way to run your business, your career, or your life.

The other is that there are particular rules that work extremely well for making money, for your career, and for your happiness and value to others.

In Praise of Principles

In science, there are a few universal laws -- such as Newton's laws of gravity and motion, Einstein's theories of relativity, and Darwin's theory of natural selection and divergence -- that explain so much. The laws of nature are few, and getting fewer, as scientists realize how interrelated they are. Rules of thumb such as pi, Fermat's Principle of Least Time, and other mathematical formulae work perfectly or almost perfectly when applied to the right problems. Indeed, the regularity of mathematics is for me the greatest wonder of the world. Nature could have been so random that the laws of mathematics only applied in a few domains, or perhaps only on Tuesdays. There is a deeply consistent structure of the universe that is fundamentally rational and that even our weak brains can penetrate and describe.

My first contention, therefore, is that certain powerful rules of thumb explain an amazing amount and nearly always work.

My second contention is that a few excellent rules work not just in science, but also in business, careers, and life generally. Here I have to rely on a different kind of argument, that from my own experience, and that of many other people.
I'll deal briefly with principles that apply (1) in business and making money, (2) in our careers, and (3) in our lives generally.

Two Great Principles That Apply in Business & Making Money

The first principle is that of Selectivity, also known as the 80/20 Principle.

I don't want to bore you if you already know and use the 80/20 principle; and if you don't, there's not enough space here to explain it, beyond saying that it is nearly always true that most results have very few causes, and there are usually a few powerful causes that are far better at generating results than most causes. The 80/20 principle is the bedrock of other principles, because there is always a better principle that gives more results for less energy. But I can be very specific about the way managers or investors can use the 80/20 principle:

• There is always a small proportion of products, customers, ways of competing, or parts of the value chain (research & invention, production, marketing, distribution, etc.) that makes the great majority of profits and cash. Just concentrate on that small proportion, the sweet spot, to make far more money with far less capital than the average in your field.

The second is the Star Principle -- the way to multiply money is to only invest in "star" businesses - those that are the leaders in a very high growth market or segment.

If you want to make 10 times, 100 times, 1000 times your money, the only way to do it is to find a business that can grow exponentially for 5, 10, 30, or 100 years. Exponential growth comes from offering a product or service that is hugely greater value, either because it is less than half the price of comparable offerings, or because it is a joy to use.

There is a third way - to follow one of two alternative ways to simplify a product and market. Greg Lockwood and I are writing a book called Simplify about this and I will give some hints in a future post.

Two Great Principles That Apply in Our Careers

First, the choice of firm is more important in propelling your career than how good you are. Unless you start your own business, opportunity only comes from fast-growth firms - and the best firms are the "stars", leaders in high-growth segments. In a firm that's growing rapidly, there are more openings than people, and you can boldly go where no one has gone before.

Second, your boss is also more vital to how you do than your abilities. 1-5 percent of all bosses, even in the same firm, will corner 95-99% of results. Bosses going places make that possible for you too. Position yourself in the slipstream of the fastest-rising boss. The best thing about great bosses is that you can learn from and imitate them - they have special knowledge and ways of operating.

Two Great Principles That Apply in Making Us Happy & Productive

# 1 - the secret to being happy and productive is doing something that excites you, where you can carve out a unique role. If you are not excited about life, you are existing but not really living. Everyone is excited by something. The tragedy is that most of us spend most of our lives doing things that bore us. If that's true for you -- do something different, even if it is badly-paid, not paid at all, risky, or hard to get into.

# 2 - to be happy and productive, we need to feel loved and to love ourselves. We all respond well to love; the astonishing thing about human actions is their very wide range. The same person, depending on the circumstances and the people they are with, can behave like a saint or a monster. Ergo - nestle within the company of people and organizations that bring out the best in you.

Do not have friends who are not friendly, who do not really have your best interests at heart. Never attempt a relationship with someone who cannot truly love.

Even in the choice of a firm to work for, the moral quality of the firm is more important than money, prestige, experience, or anything else. Some places encourage friendliness, consideration, dignity for everyone, and care for customers and colleagues; others do not.

When deciding whether to build a relationship with another person, we tend to be influenced by looks, chemistry, how interesting and amusing they are, or how much they can help us. But far more important is whether they want to help us, and whether they are loving people. To love we must first be loved. If we are loved, we are happy. If we are happy, we are secure enough to create great things.

CONCLUSION

"As to methods there may be a million," wrote Ralph Waldo Emerson, "but principles are few. The man who grasps principles can successfully select his own methods. The man who tries methods, ignoring principles, is sure to have trouble."

To go through life wisely, we should decide on a few principles that work well, and pursue them single-mindedly. Almost nobody does this. Anyone who does this has a tremendous advantage. Certain quite crude rules of thumb - including all those listed above - while not invariably true, contain concentrated and distilled insight and predictive power.

Moreover, anyone who lives by a few great principles has the philosophical resolve that leads to sharp decisions and consistent action. Without a few principles to guide us, we dither and temporize, and are prey to manipulation by stronger-willed people around us. With the right principles, we can easily decide what to do and be confident we will find the right road.

To get the most out of life, and put the most back, we need to simplify all the confusing complexity around us, and get back to a few principles that we can always apply. Wrong turnings and blind chance are bound to intervene, but will not defeat the person who adheres to good principles.

Action Implications

1. Decide the 1-2 principles that will guide you in business and making money; in your career; and in becoming a happy and fulfilled person. Choose principle that are proven in practice and that appeal to you.

2. Use the principles to make all important decisions.

3. If things don't work out, change your methods, but not your principles.